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Antonio Moreno Ibáñez, Associate Dean of the School of Economics, University of Navarra, Spain.

Energy and interest rates

Sat, 02 Apr 2011 14:07:00 +0000 Published in La Razón

The expression "April slope" has been rightly introduced these days in the national economic jargon, since the increase in the prices of gasoline, natural gas and butane gas, together with the rise of the Euribor -subject of interest at which a great part of the mortgages are indexed - supposes a new obstacle to the slow recovery of the Spanish Economics . At final, this increase in basic prices, together with wage rigidities -and decreases, in more than a few cases- means a loss -another one- in the purchasing power of families. We must also take into account the indirect inflationary effects on many other prices on Economics, which reinforces the direct negative effect. It is precisely rising European inflation that is driving the rise in the Euribor. A rise also justified by the European cycle of greater prosperity, with which we are not yet synchronized. A rise that is presumed to be the first of many more, in an environment of a return to conventional post-crisis monetary policy.

The Government has frozen the natural gas and butane gas tariffs for the beneficiaries of the social bonus, some three million low-income citizens with unemployed family members, as well as large families. This measure partly mitigates the harmful effects on the sector of the population most disadvantaged by the rise in these prices. However, the two latent dangers persist: future increases in gasoline prices due to the rise in oil prices and future increases in interest rates, with families, banks, the government and - above all - companies heavily indebted as a whole. This status augurs the continuation of weak growth in supply and demand. It is therefore foreseeable that inflation will not rise beyond 5 percent, but this will be at the cost of low economic growth and a stagnant labor market. All this, in a context of public expense control in the interest of the progressive reduction of the public deficit, in order to achieve international financial survival. A whole challenge that makes us remain on high alert.