September CPI 4.9%: the official figure and the IRPF (Spain's income tax) left untouched

CPI 4.9%: the rise that hits IRPF before it hits your pocket

The official figure for the month is 4.9%. The one you leave at the supermarket checkout, judging by the prices in any shopping basket, is far higher. That gap between the figure published by INE (Spain's national statistics institute) and what you actually pay at the counter shapes September's economic debate: an index that slows its climb on paper and that no one recognises on their receipt.

With that figure on the table come two different bills. One is signed by the ECB, which according to much of the analysis has not tightened rates enough. The other is signed by Hacienda (Spain's tax authority), which keeps part of every pay rise without touching a single tax rate.

The official 4.9% and the CPI you feel when you pay

The indicator stands at 4.9%, but the majority consensus holds that the cooked figure falls short of the real increase in prices. The underlying argument is simple: the data always lags what people pay at the till, and fuel is the best thermometer for that gap, with serious diesel supply problems already flagged in France and the UK. According to this analysis, real inflation would be more than double the published figure.

Not everyone buys that framing. Some play down the alarm and point to the external context: it is not an exclusively Spanish phenomenon, and both the rest of Europe and the United States show similar price pressures. The nuance does not deny the problem, it just distributes the blame differently.

Why doesn't a CPI-linked pay rise prevent a loss of purchasing power?

Because IRPF is applied to gross pay and, since brackets are not indexed, a pay rise equal to CPI can push the taxpayer into a higher bracket: you earn more in nominal terms and less in real terms. It is the mechanism described as the system's quietest tax, and the one that explains why year after year the worker 'moves up a bracket' without noticing it in their account.

The calculation circulating is blunt: of a pay rise agreed at around 5%, nearly half goes to Hacienda. The net increase would be 2% or 3%, not enough to offset CPI. With that margin, both pensioners and wage earners again lose purchasing power despite seeing their pay packet grow.

A recurring warning hangs over the minimum wage: raising it without linking it to productivity squeezes small-business margins before improving the life of the person who earns it.

Why doesn't the ECB raise rates to 4%?

Because, according to the most repeated thesis, the ECB does not act with real independence and sets rates below what would be needed to contain inflation. 4% by year-end appears as a minimum reference, and some argue that even that would be too little. The critical reading is that the institution works to dilute public debt at the expense of households' purchasing power.

The result for savers is a double punishment. When inflation is low, rates collapse; when inflation is high, they rise, but never enough to match CPI. Deposits still pay nothing: no mainstream bank offers a stable 4%, and acquisition offers at 5% last a couple of months and are only for new customers. The Spanish 10-year bond, meanwhile, is around 4%. The disciplined saver is left staring at the wall.

Pensions and child maintenance: the CPI knock-on effect

Pension increases are updated with CPI, and the maximum pension is around 3,000 euros a month. The problem is that much of that increase is absorbed by the same unindexed IRPF, so the net effect again falls below prices.

There is a third front, more domestic and less discussed: child maintenance payments in divorces are also updated according to CPI, with the impact that has on already tight budgets. The revision comes on its own, with no negotiation and no room for manoeuvre.

The measures on the table

Against this backdrop there is a list of tax prescriptions that keeps coming up: indexing IRPF brackets, cutting fuel taxes, lowering VAT and not forcing minimum wage rises without tying them to productivity. The argument accompanying the proposal is that, in some cases, revenue would even rise. To this is added a management criticism: with rates at historic lows, a prudent manager would have taken the opportunity to reduce debt and prepare for the rise that was coming.

The alternative mentioned half-jokingly —importing labour to contain wages and prices— dismisses itself for what it is: a gimmick with a social cost.

It remains to be seen whether the government chooses to index IRPF brackets, cut VAT or ease fuel taxes, or whether it lets inflation do the work of raising revenue by itself. No one in the conversation dares to set a date.