• Inflation does not loosen and lowers the purchasing power of workers to 1996

The additional savings that Spaniards preserved in 2020 and 2021 due to the effect of the pandemic on consumption are running out. In 2022, families had to pull that surplus in order to maintain the level of consumption and face an unprecedented rise in prices – inflation closed the year with an average increase of 8.4% – with which the savings rate fell to half of 2021 and was below the historical average.

According to INE data, the savings rate of Spaniards stood on average at 8.9% between 2008 and 2013, in the worst years after the financial crisis; while during the subsequent recovery period, between 2014 and 2019, it fell slightly to 6.7%, encouraged by the recovery in consumption.

2020 and 2021 were exceptions to this trend, as administrative restrictions – lockdowns and closures – prevented families from spending normally, hence their savings grew considerably. The savings rate rose to 17.8% of households' gross disposable income and, in 2021, fell as activity recovered, although it remained above the historical level, at 13.8%.

The year 2022, however, has marked a turning point. The rise in prices that suffocates families and the increase in interest rates carried out by central banks to try to tackle inflation has led them to pull these savings to be able to face the same level of consumption but at much higher prices, hence experts predict a considerable drop in savings.

In the absence of official data from the INE, Funcas expects the savings rate to have fallen to 5.7% in 2022 and to continue to be cut in 2023 and 2024, to 4.8% and 4.9%, respectively. The decline in the savings rate has also been influenced by the fact that gross disposable income has fallen by 1.1%, according to this entity, so that the amount of household income has been lower.

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The cushion accumulated during 2020 and 2021 has stopped growing, although its existence, together with the favorable evolution of employment, is probably what has allowed consumption to be sustained despite the loss of purchasing power of households, at the expense of a substantial reduction in the savings rate, "explains Funcas.

BBVA Research also notes that "the savings accumulated during the pandemic are beginning to be absorbed", since "in the face of the increase in inflation and interest rates, families have begun to use the excess resources they accumulated in confinement". This has allowed them to buy housing, anticipating more interest rate hikes, pay off part of their debt or renegotiate it on more favorable terms.

"It is estimated that mortgage amortizations would have increased from 4,500 million euros, on average per month, between May and December 2021 to around 6,000 million in the same period of 2022," they explain, which shows that some families have used part of their income to reduce the burden of their mortgage instead of allocating it to savings.

According to its experts, the savings rate could have fallen to 7.5% of the gross disposable income of households in 2022, considerably below the level reached in 2020 and lower than in 2019. "Households seem to accept lower savings rates, in order to maintain consumption, probably pulling on the excess wealth accumulated during the pandemic," they point out.

However, given that these savings are drying up, it is foreseeable that inflation will begin to take its toll on private consumption: families will be forced to consume less, given that prices do not fall and they no longer have as much cushion to pull from. For this reason, BBVA Research expects consumption to grow from 4% in 2022 to grow by only 0.2% in 2023 and 1.7% in 2024.

This slowdown in consumption, in turn, could cool economic activity – it is a fundamental component of GDP, which is projected to increase by 0.6% this year – and, consequently, slow down the rise in prices, since if companies sell less they will be forced to lower the price to encourage purchases, which could ultimately help contain inflation – which, According to his calculations, he will close the year with an average increase of 4.8%.

Distribution of savings

The Bank of Spain also confirms that the savings rate of Spaniards has been falling since 2021 to stand at levels lower than those observed before the pandemic in the third quarter of last year, but recalls that the savings that accumulated in 2020 and 2021 were not distributed homogeneously among all families.

On the one hand, because the restrictions imposed affected more the consumption patterns of higher-income households, in whose basket consumption in hospitality and leisure weighs more; and, on the other, because their incomes suffered to a lesser extent than those of lower-income households, since low-income individuals have a higher weight in employment in those sectors that were most affected by the health crisis.

"As a result, a very high proportion of the extraordinary savings accumulated during the pandemic was concentrated in the highest incomes, whose marginal propensity to consume is lower. Therefore, it is likely that, in the future, a significant part of this savings will not be destined to consumption, but will remain in the assets in which it materialized, "says the supervisor.

Part of the drop in the savings rate is due to the fact that average incomes use it to weather inflation and, on the other hand, because high incomes decide to use that savings to amortize debt or to channel it to other investments such as real estate.

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