Analysis of recent inflation dynamics in Spain. An approach based on the Blanchard and Bernanke (2023) model

Abstract

The recent inflationary episode is the result of a series of shocks that have taken place over a short period of time. In this article we use the Blanchard and Bernanke (2023) model as an analytical framework to assess the relative importance of different factors over the course of this episode. Two main conclusions can be drawn from our results. First, supply-side shocks (related to energy, food and bottlenecks) have played a major role in recent inflation developments in the Spanish economy. Second, now that these supply shocks have been absorbed, labour market tightness is becoming more important as a determinant of wage inflation, with a pass-through to prices that has been limited so far but that, if it intensifies, could generate risks with a higher degree of persistence.