Economic storm clouds mark the start of the summer

Uncertainty. The rising cost of everyday expenses is stretching the budgets of people in Malaga as the holiday season begins


Summer has arrived, the forecasts for the peak tourist season are excellent and most people's holidays are just around the corner, if they have not started already.

However, for many families in Malaga province serious storm clouds are lurking on the horizon, because something very like a perfect storm is threatening the domestic economy of thousands of households, besieged by the constant increase in their everyday expenses.

The indicators are at maximum highs: prices are rising by 10.2 per cent, which is the highest inflation rate in 37 years; the Euribor (which sets the interest rates for most variable-type mortgages) ended June higher than it had been in the past ten years.

Analysts say they do not expect to see a moderation in the increase in prices of basic products in the short term

The price of fuel has gone up by more than 50 per cent in the past year and is now over two euros a litre and electricity bills have become a real nightmare for families and businesses alike.

The escalating prices have come to stay for basic items such as the weekly shop, energy and fuel, and analysts agree that prudence will be needed in the near future, with the war in Ukraine ongong and uncertainty about what might happen in the next few months.

"In the first quarter of this year people started buying less in Andalucía and in Spain as a whole, because the prices of most of the items they normally buy have risen so much.

"In this scenario, which is expected to last through the second half of this year, further adjustments may have to be made, especially for families with low income and the businesses which have been most affected by the Covid-19 crisis," says José Antonio Muñoz of Analistas Económicos de Andalucía, the company at Grupo Unicaja Banco that carries out studies.

The increased cost of food shopping is also of concern to the president of the Consumers Association of Malaga, Jesús Burgos:

"The CPI (Consumers Price Index) includes the rise in price of many items, but if shoes cost more, as they are something you only buy every now and then, it is not the same as bread, which you buy almost daily.

The real problem is the cost of food, because all the basic things that people normally buy have gone up in price: meat, fish, fruit and vegetables, bread, etc," he explains.

"Our analyses show that a small family is spending on average between 30 and 40 euros more on basic shopping than they did a year ago for the same things, and it looks as if prices are going to continue to rise," he says.

Going up at the same time

"A lot of things are becoming more expensive at the same time, that's the problem," Jesús Burgos says about a situation which thousands of families are facing when they need to go to the supermarket, fill the car and pay the electricity bill.

In line with his forecasts, Analistas Económicos de Andalucía are not expecting things to improve in the short term:

"The inflation data for June, which was the highest in 37 years (10.2% year on year) and the trend so far suggest that prices will continue to rise in the months to come.

However, there should be a sharp moderation from the second half of 2023," they say.

The increased cost of food, fuel and energy are in addition to mortgages, with the Euribor at its highest level for ten years. In practice, this means a notable increase in monthly mortgage repayments for those with variable interest rates.

To give two examples, for a variable-interest loan of 150,000 euros over 30 years the monthly payment will go up by about 90 euros, which is over 1,000 euros a year.

For a loan of 300,000 euros, the payment will go up by just over 180 euros a month, or more than 2,010 euros a year.

A cruel paradox

What is paradoxical about this situation is that mortgages have become more expensive because the European Central Bank has let slip that it will increase interest rates after the summer to slow down the rising inflation.

In other words the ECB wants to slow down the rise in prices but its first effect is to make mortgage repayments more expensive, because the money being lent will be at a higher interest rate.

"The simple threat of the ECB increasing interest rates has made mortgages go up. We have gone from a negative index of minus 0.5% at the start of the year to an expected 1% plus soon.

That point and a half means that repayments will go up considerably.

If that was all that was happening families would be able to cope with it better, but the problem is that it is on top of all these other increases," says José Manuel Fernández of the Mortgage Credit Union (UCI).

And the short-term forecasts for this aspect are not looking good, either.

"Everything points to the Euribor continuing to rise, at least during the next few months, and that is very bad news for people with variable interest mortgages," says Miquel Riera, the head of mortgages for the specialist portal Helpmycash.

More expensive mortgages

"Most of the mortgages which have already been granted will go up, but so will those approved in the future," warns Riera.

"The banks have been offering more expensive mortgages since February. At the start of this year it was relatively easy to find one at 1.5% and now the majority are around 2%.

"Banks are also going to be more demanding with their clients, going to ask for more solvency, more job stability," he says.

This half-empty glass for household economies of thousands of families can offer a half-full side if the forecasts from analysts such as Fernández and Riera are fulfilled, and which include a stabilisation in the sale price of properties.

If loans are more expensive and buyers have less money, it would be logical for prices, at least, to stop rising. "The rise in prices will moderate, because it is likely that demand will slow down or even fall," says Riera.

The Malaga exception

This could be another case of the so-called 'Malaga exception'. "In areas like Malaga, Barcelona and Madrid it is more difficult to forecast in this way, because the demand from international purchasers is more assured," says Riera.

It means that Malaga could maintain a situation which already exists and which also applies to inflation: the cost of property rises more in this province because demand is so much higher, in many cases due to foreign tourism.

These visitors do, however, bring with them the promise of a better summer for the local and regional economy, with the consequent effect on employment and businesses, especially in the services sector.

"All the forecasts agree that the tourist season for Malaga province and the rest of the Andalusian costs will be excellent," say sources at Analistas Económicas de Andalucía, "with a very positive contribution to economic growth. Although the scenario won't be as dynamic as believed earlier this year, there is hope that the Malaga and Andalucía economies will maintain gradual growth and this will stabilise once the causes of uncertainty are alleviated."

That uncertainty is casting a shadow on the economic horizon of thousands of Malaga families, just when summer is knocking on the door.

is the year-on-year inflation rate for June. It is the highest figure in the past 37 years and is marked by the increased cost of basic food items and fuel

is the average increase in the cost of the fuel most often used by individuals. The rise is in the past year and it means that the cost of a litre of fuel is now over two euros, everywhere

was the Euribor rate at the end of June. It is the highest rate for the past decade and can result in the repayments on an average mortgage loan (150,000 euros over 30 years) going up by 1,000 euros a year