Volatility is the word that best sums up the past three years in the global economy. The impact of the pandemic created a hurricane in supply chains and laid the groundwork for what would prove to be a veritable economic nightmare in subsequent years.
On February 24, 2022, with the Russian invasion of Ukraine, the challenges we already faced intensified and the consequences were soon felt in the wallets of the Portuguese. A year later, the cost of living is exponentially higher, with clear consequences for energy, food and housing. “What we will see in Europe in the coming months remains a scenario of great uncertainty,” warns Fernando Alexandre, doctor of economics and professor at the University of Minho.
One of the themes is the increase in the energy bill, with direct effects, such as the increase in the value of fuel and gas, and indirect effects, with the increase reaching all goods whose production and transport depend on oil, gas or coal . This means that almost everything has been affected by the energy crisis resulting from Europe’s dependence on Russian gas.
In 2021 alone, energy exports from Russia to the EU will have generated around €400 billion. “Inflation was felt all over Europe and it’s not just the war as a cause, it was before. But it was accelerated with this energy shock and food commodities,” says the economist.
The need to reduce energy dependence on Russian fossil fuels led the EU to launch the REPowerEU program in May 2022 to diversify the origin of these imports. In Portugal, despite the fact that Russian gas has no significant weight in the country’s energy purchases, the government in Portugal, in cooperation with Spain, created the Iberian Electricity Price Control Mechanism to mitigate the impact of the rise in consumer bills. According to the Minister of the Environment, Duarte Cordeiro, the measure has made it possible to keep the maximum gas price for electricity production between June and December 20% lower than without government intervention. That is why Portugal and Spain have already asked Brussels to extend the Iberian mechanism beyond May.
Higher grocery bills
In addition to the energy consequences, the war also affected the price of grain, which had also risen before the Russian invasion. Energy costs made the perfect cocktail for the increase in food products with a direct impact on inflation.
According to INE, October (10.1%) was the month with the highest inflation since May 1992. The annual average was 7.8%, also the highest level since 1992.
The changes in the categories of unprocessed foods (12.2%) and energy products (23.7%) contributed to this. DECO has been monitoring the price of the basic food basket, containing 63 items, since the day before the start of the war in Ukraine. While this shopping list cost an average of 183.63 euros on 23 February last year, on 23 February of this year the consumer needed 226.60 euros to buy the same items. It is an increase of 43 euros (24% more).
“It was no coincidence that on several occasions the government had to come and support families, especially the most vulnerable,” says the coordinator of DECO’s financial protection office, Natália Nunes, referring to specific help such as the voucher 125 euros awarded to all people with a gross income up to 2700 euros, 50 euros granted to a minor child and the half-board premium to pensioners with benefits up to 5300 euros/month, paid in October. DECO warns: “Inflation is expected to remain high in the coming months”.
house rent is rising
One of the biggest challenges for the Portuguese is the cost of money. In addition to the rise in the cost of living in general, mortgage lending is rising due to the increase in key interest rates set by the European Central Bank (ECB), which reached 3% this month – the highest since the financial crisis of 2008. And that affects consumer credit. Fernando Alexandre believes these increases are “a burden on families, businesses and the state”. The path, he argues, must be through “targeted policies to protect the most vulnerable”, avoiding general increases in income so as not to exacerbate inflation.
Those who have mortgage loans linked to Euribor for three, six or twelve months feel the increase in the installment installment paid to the bank. This Wednesday the Euribor rose again, in terms of three and 12 months, to the historic highs of 2008 – in the case of the shorter term, in positive territory since July, it now stands at 2.683%, while the longer term settles at 3.625%. “If we talk about a loan of 150 thousand or 200 thousand euros, it means that those with credits of this value have very significant increases, of 200 or 300 euros, in the payment,” translates Natalia Nunes.
About the support that the government has now announced to support families with mortgage loans, the specialist says that “all help is welcome”, but she points out that there will be no maximum annual support of 720 euros for the credit subsidy that ” will prevent non-compliance”. DECO argues that a line of finance should be created for families so that in case of difficulties they can pay the installments to the bank, avoiding renegotiation of contracts and possible fines at the credit responsibility center. “These are difficult times,” he expects.
Source: DN
