The annual rate of the general Consumer Price Index (CPI) in the month of May was 8.7%, four tenths higher than the previous month, according to the INE. And the annual rate of underlying inflation increases one point, up to 4.4%. In general, inflation in Spain has been going up for months and many people wonder what repercussions this data will have on the real estate sector.
The portal statesman reports that both the covid-19 and the increase in energy and fuel prices have catapulted average year-on-year inflation to 3.1%, the highest value recorded since 2011. A similar trend is experienced by the variation year-on-year CPI, which rose to 6% in January 2021.
Specifically, and according to the INE, housing has had an annual variation of 18.8% in April, more than 14 points below that registered in March due to the drop in electricity prices, compared to the increase registered in April from the previous year.
“The impact of inflation in the real estate sector is a reality. You just have to see how the price of real estate has evolved, both in new and second-hand housing, with great year-on-year growth rates,” he explained. Vicenç Hernández Rechepresident of the National Association of Real Estate Agents of Spain (ANAI) and of the Association of Real Estate Agents of Catalonia (AIC), in his last speech on the program ‘capital Intereconomía’ on Radio Intereconomía.
A strengthened sector
Although there are consequences, Lola Alcover, Secretary of the General Council of Official Associations of Real Estate Agents of Spainaffirms that “despite the complicated international situation we are experiencing and the strong pressure caused by the skyrocketing trajectory of the inflation rate, the real estate sector responds by maintaining its strength and with very healthy figures, and is clearly showing itself as a safe market and a well-defined refuge value in the face of the uncertainty that looms on different fronts”.
Will inflation continue to rise until the end of the year?
The Bank of Spain has revised downward some forecasts marked by the war in Ukraine and inflation. And it has lowered growth expectations for the economy in 2022 by almost one point, to 4.5% compared to the 5.4% estimated in data for December 2021. The big change occurs in the inflation forecast, since it expects that the average CPI in 2022 is 7.5%, compared to 3.7% in previous forecasts.
“With the measures applied by the central banks, as well as the desired end of the war, inflation is expected to decrease at the end of the year. This will not reach the average of recent years, which is around 2%-2.5%, but will stabilize at around 4%-5%, which is still a period of high inflation”, according to the Mediolanum adviser. At this point, in the short term, the expert predicts that it will be a success to be able to reduce inflation by half and maintain these inflation rates above the average. “This helps governments to repay the debt generated during the monetary injection in Covid-19 at a lower cost, since the debt is worth less with high inflation.”
