Since 2018, wages in Spain have gone up, but inflation has eaten up much of those increases. This “invisible tax” has reduced the purchasing power of workers, affecting their purchasing power and savings. Do we really earn more or are we simply paying more for the same thing? In this article, we analyze how inflation has neutralized wage increases and their impact on the real estate market.
Inflation and wage developments in Spain since 2018.
Recorded salary increases
Since 2018, Spain has experienced significant wage increases. The Minimum Interprofessional Wage (SMI) has increased by 61%, from €736 in 2018 to €1,080 in 2023. However, this growth has not been enough to offset the impact of inflation on workers’ purchasing power.
Annual inflation rates
At the same time, inflation has shown significant variations:
- 2018: 1,2%
- 2019: 0,7%
- 2020: -0,3%
- 2021: 3,1%
- 2022: 8,4%
- 2023: 3,5%
- 2024: 2,8%
- 2025: 2.1% (projected)
The inflationary escalation, especially in 2021 and 2022, has had a strong impact on the purchasing power of citizens.
The impact of inflation on purchasing power
Comparison between real and nominal salaries
Although nominal wages have increased, inflation has eroded much of these increases. Inflation is estimated to have absorbed 89% of wage increases since 2018, implying that workers’ purchasing power has barely improved in real terms.
Consequences on household consumption and savings
The decline in purchasing power directly affects household consumption and savings, limiting their ability to invest in high-value assets, such as housing. Citizens prioritize spending on basic necessities, reducing their ability to save and postponing important financial decisions, such as the purchase of a home.
Impact on the real estate market
Effects on housing affordability
With stagnant real wages and rising housing prices, the affordability of homeownership has been reduced, especially for young people and middle- and low-income families. The combination of insufficient wages and steadily rising prices has created a widening gap between the dream of homeownership and the current economic reality.
Trends in rents and property prices
The demand for rentals has increased due to the difficulty of accessing property, which has led to increases in rental prices in urban areas. Cities such as Madrid and Barcelona have seen considerable increases in the cost of rent, limiting housing options for many citizens.
Strategies to mitigate the effect of inflation
CPI-linked salary adjustments
Implementing wage review clauses that adjust salaries according to the Consumer Price Index (CPI) can help maintain workers’ purchasing power. This measure would ensure that wage increases reflect fluctuations in the cost of living.
Government policies and their effectiveness
The government has adopted measures, such as the increase in the SMI, to counteract the loss of purchasing power. However, the effectiveness of these policies depends on its ability to adapt to economic fluctuations and ensure that wage increases exceed inflation.
Inflation has acted as an ‘invisible tax’ that has almost completely eroded wage increases since 2018. This has directly affected citizens’ purchasing power and generated a significant impact on the real estate market. To mitigate these effects, it is necessary to implement strategies that ensure fair wage adjustments and effective government policies.
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