Pensioners have not seen their income hit by inflation. / AFP

Bank of Spain says pension rises should not be linked to inflation

In its annual report, it has urged government, employers and unions to reach a deal on moderate wage increases to keep inflation down

EDURNE MARTÍNEZ MADRID.

The Bank of Spain is calling for an agreement to limit wage increases to reduce the risk of prices spiralling out of control.

The comments, in its annual report, come amid fears that runaway inflation in Spain (reported as 8.3% in April) may bring with it knock-on effects if companies start to put their prices up and increase workers' salaries so staff do not lose purchasing power.

Although negotiations between employers and unions on wage levels broke down some weeks ago, the bank says that in reality an income pact is already happening unofficially.

Its report says that companies have "very partially" been transferring their costs to the prices of their products since early 2021, resulting in a reduction in profit margins. At the same time, negotiated salary increases are "clearly lower than the rate of inflation", which means workers are losing purchasing power. This means all sides share the "inevitable loss of income".

Pension rises

The report says this restraint should also include Spanish pensioners, currently the only group that does not lose purchasing power this year because pensions are updated in line with the rate of inflation. It says there is a need to go back to a separate benchmark scale for pension increases as there was a few years ago.

To increase national income, the Bank of Spain also says a review of the tax system is needed. Among its proposals is an increase in IVA value added tax so the standard rate (21%) is charged on products for which the tax is currently 10% or 4%.