The euro is heading for a devaluation already showing up in grocery bills

The euro is heading for a devaluation already showing up in grocery bills

The euro has lost just over 20% of its purchasing power in five years. That is the figure hiding behind the widespread feeling that everything is more expensive, and the starting point of a discussion that in recent days has moved from dinner-table complaints to number-crunching: eurozone harmonized CPI of 2.6% in 2021, 8.4% in 2022, 5.4% in 2023, 2.4% in 2024 and around 2% in 2025. Cumulatively, more than 20%. That amounts to losing nearly 18% of purchasing power. The worst five-year stretch since the single currency came into existence.

The thesis running through the analysis is that this is only the beginning. What lies ahead is a major currency devaluation in Europe, with the ECB printing money on a massive scale and member states paying off, in installments via inflation, the debt they took on to cover the crises of 2008 and 2020. The question is not whether there will be more devaluation. It is how much, how, and at what cost.

The CPI that doesn't match the shopping basket

The first front is statistical. Some argue that the CPI does not measure real inflation, but rather smooths it over. The argument: the basket used by Spain's statistics office (INE) does not reflect where a family actually spends its money, because housing weighs far more in real life than in the index. If that weight were corrected, the cumulative figure would not be 20% but considerably higher. The figure circulating in the most aggressive analysis points to a minimum of 40% over five years.

Add to that the fiscal effect. Income tax brackets in Spain (IRPF) have not been adjusted for inflation in more than a decade, so anyone who has not seen their salary rise is effectively earning 30% less in real terms, and anyone whose salary has risen with the official CPI —a 30% increase— ends up nearly 15% worse off because the raise falls into a higher tax bracket. Inflation, in this scheme, doesn't just make life more expensive: it also raises the tax bill without anyone voting for it.

The contrast with the official figure is the crux of the matter. Prices of some specific products —olive oil, eggs, chocolate, housing— have risen far more than the average, and they are the ones people notice most. The statistics say one thing; the shopping basket says another. And it's the second one you pay for.

Why the ECB can't raise rates as much as it should

The second front is monetary. The orthodox prescription is clear: stop the printing press and raise rates. It is argued they should have been at 3.5% long ago. But there is a deeper problem laid out bluntly: France is already effectively bankrupt, and the only path left for the EU is for the ECB to buy public debt, which means more inflation and more misery.

The dilemma has two sides. A devaluation of the euro would boost exports, but it would wipe them out through the cost of imported energy. And on the horizon, a break-up scenario cannot be ruled out: France and Germany leaving the euro and returning to the franc and the mark, while the rest head toward an Argentina-style outcome. In between, people demanding more debt for more public spending.

The diagnosis that prevails is stagflation: high inflation with dead growth. And the warning that if rates rise a little more, trade will go to hell. The economy, they say, is dead.

Gold, bitcoin or Treasury bills: how to protect yourself

The practical question soon appears: how do you protect yourself? The most common answer is gold, with one figure cited: the price of an ounce in euros has gone from around 1,500 euros in 2021 to more than double that. But it's worth adding nuance: over those years gold has also soared in dollars, Swiss francs and yen, due to massive central bank purchases and demand for a safe haven. It's not just about the euro's decline.

Bitcoin appears as the other leg of the hedge, with the thesis that Europe will become dollarized and that the US plan from the start has been for European savers to pay for its inflation. The example cited is Turkey and Argentina: the next to absorb the inflationary export would be Europe and Japan.

The most sober version points to what any manual recommends: an emergency cushion in Spanish Treasury bills, interest-bearing accounts or money market funds, and for the long term, globally diversified equities. Being spread across many currencies, it partially hedges if the euro falls. None of this is financial advice, but it is what there is.

The calculation that unsettles: money supply vs. the CPI

There is one figure that has slipped into the discussion and changes the frame. The eurozone's M3 money supply went from around 13.4 trillion at the end of 2019 to just over 16 trillion. That is monetary expansion of around 20% over the same period. The uncomfortable question being raised: if the CPI has accumulated 20% and the money supply 20%, where is the 50% devaluation some people see at the supermarket?

The answer is that the feeling is not a statistic, but it is not a fantasy either. The euro against the dollar has not fallen 50%, and anyone claiming so is wrong. But purchasing power has indeed fallen 18%, and that is a huge amount. The discussion, at its core, is not about whether there is devaluation. It is about its size and its estimulante ilegal.

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The question left hanging is the one nobody quite answers: if the devaluation is already here, if the accumulated 20% is just the appetizer, how long until European savings become the next adjustment variable?