The Illusion Of Purchasing Power

It was one of those statistical tidbits, of which we are fed a vast diet but which, I suspect, we take comparatively little notice, except when there is a nibble to make one wish to digest it. It had to do with purchasing power, defined in this instance as the relationship between consumer prices and average salaries. When I read it or, more accurately, wrote it, because it was a news item from the statistics bombarders of the news syndicates, it did for once make me stop and think. Not, as is sometimes the case, to try and fathom out what contradictory or erroneous message was being conveyed - trust me, this stuff is full of mistakes - but because of its implication.

What it said was that purchasing power in the Balearics has fallen this year by 0.9%: not a huge fall by any means but a fall nonetheless. The explanation for this diminution of power was that prices had risen whilst average salaries had gone down. On the price side, one might think that this was a result of inflation. There is inflation in the Balearics, the highest rate among the regions, but it is currently only 0.6%. There are deflationary pressures in parts of Spain, but not in the Balearics. Only just though. Inflation isn't much of a factor.

But even if it were, there was the fact that average salaries have fallen. How on earth can this be? Are we not supposed to be going through times of economic improvement, of recovery, of growth, of greater business confidence? One could always question the finding, but if it is true and if purchasing power is declining as a consequence, then this all hints at something that the announcements of better times don't: the recovery is not as strong as we're being led to believe.

Easy it would be to say that the positivity - that of politicians, in particular those from the Partido Popular - is all a pre-general election smokescreen: that the recovery is all baloney not matched in reality. Yet, we learn how in the Balearics there is greater buoyancy on the high street (not that there is one in the British sense), there is more spend in restaurants and what have you, there is more being spent at petrol stations. Which may all be true, but how much of it actually comes from the purse of the ordinary Josés of Mallorca (aka Joseps)? The restaurant sector, for example, has been saying that the buoyancy has been mostly confined to the tourism centres, thus implying that it is tourists who are the ones contributing to better times, and of these, it may well be the Brits who are doing much of the contributing, what with the pounds in their pockets stretching to ever greater euro purchasing power.

The retail sector may be a better guide, especially for certain parts of it which are showing good growth: household goods, for instance. As a general rule, tourists don't splash out on things like washing machines as souvenirs, so it's fair to say the growth is local. But this isn't necessarily the case across the whole of the retail sector. The petrol stations are enjoying the spend of the car-rental market, the supermarkets are benefiting from the rise in residential tourism.

Is growth, therefore, purely temporary? Instinctively, you would have to think that it is, given the nature of so much economic and employment activity in Mallorca. And if, underlying this, there is a trend towards reduced purchasing power, then the imbalance of the economy will be more sharply revealed come the winter months.

But this still doesn't explain why it might be that average salaries appear to be falling. Unless, that is, one factors in the growth of seasonal employment. When there are that many more people on low pay, taken on because of increased tourism demand, then the average distribution will tend to show a reduction: a greater proportion of the lower paid will drag down the average of the higher paid.

Does this really matter? In a way it doesn't. It has been ever thus with the seasonal nature of employment, after all. The likelihood might be that purchasing power, following the definition applied here, would rise in winter but only because of all the low-paid who go on the dole. But it does matter from the point of view of all that is being said of the "precarious" nature of this employment, the inherent insecurity and the potential for abuse and exploitation, plus the sheer seasonality of it.

This has been one of the themes of this summer, principally because the new government has made it one. But will this cycle ever be broken? The hoteliers are raising prices massively for next year. Will these result in better pay? Don't bet on it.