Inflation in Spain and what it does to your money

What inflation is

Inflation is the general and sustained rise in prices. Both words are doing work: general, because one product getting dearer is not enough, and sustained, because a one-off jump that reverses next month is noise rather than inflation.

The thing worth fixing from the start is that inflation does not take euros away from you. Your balance is the same in the morning and in the evening. What changes is how many things that balance buys, which is why it is perfectly possible to get poorer without a single figure at your bank ever going down.¹

How Spain measures it: the CPI

The Consumer Price Index is published monthly by the Instituto Nacional de Estadística. The INE tracks the price of a basket of goods and services representative of Spanish household spending and weights it: housing, food or transport count in the index for as much as they weigh in households' actual spending, not one-for-one.²

The index is expressed in points against a base. On the current base, 2021 = 100, so an index of 103.899 means prices sit 3.899% above the 2021 average. The figure in the monthly headlines is not that level but its change against the same month a year earlier.

That distinction between level and change is what makes the rest of this page possible: any two levels in the series give the cumulative inflation between those two moments in a single operation, with no chaining of rates and no accumulated rounding.

How much Spanish prices have really risen

Almost every page explaining inflation stops at the definition. The question people actually ask is concrete: how much has what I buy gone up? The INE series answers it.¹

Over sixty-six months Spanish prices rose 26.08%, which is an average of 4.30% a year compounded. The peak was July 2022, at 10.77% year on year, the highest rate in the recent series.

The opposite case is worth seeing too, because it exists and almost nobody mentions it: between June and September 2022 the CPI fell 0.70%. Over that stretch prices genuinely fell, and the purchasing power of a euro left alone rose.

The calculation almost everyone gets wrong

Here is the error this page exists to correct, and it is not a technicality: it changes the answer by thousands of euros.

If prices rise 26.08%, the temptation is to subtract and say €1,000 has become €739.20. That is far too pessimistic. What used to cost €1,000 now costs €1,260.80, so the right question is how much of the old basket €1,000 buys today:

1,000 ÷ 1.2608 = €793.15

The gap is €53.95 per thousand, and it appears because the 26.08% is measured against the new price, while subtracting applies it to the old one. The rule is short: purchasing power is divided, never subtracted.

A worked example with real numbers

Someone puts €10,000 into an account paying nothing, in January 2021, and does not touch it.

The balance did not move by a cent and €2,068.50 of buying power was lost anyway. No bank statement records that loss, which is exactly why it goes unnoticed.

Real return: the only figure that says whether you gained

If the money is paid interest, the comparison that matters is not the rate but what is left of it after inflation. It is worked out the same way as purchasing power, by dividing:

real return = (1 + return) ÷ (1 + inflation) − 1

With 3% nominal and 2% inflation the answer is 0.980%, not the 1% subtraction gives. The difference looks trivial over one year and stops being trivial in two cases: compounded over decades, and whenever inflation is high. Savings at 2% against July 2022's 10.77% do not return −8.77%, they return −7.92% in real terms.

The practical reading: a deposit can carry a positive rate, be perfectly guaranteed, and still cost you purchasing power every year. A rate below inflation is a real loss wearing the clothes of a gain.

How long untouched money takes to halve

The European Central Bank's declared objective is inflation of 2% over the medium term.³ Even if it is met exactly, money that does not move is worth half in thirty-five years. It is the simplest argument for long-term savings having to do something, and the reason this page is the honest counterweight to the compound interest calculator: a thirty-year projection that does not discount inflation tells half the story.

On the rule of 72, which gets repeated a lot: dividing 72 by the inflation rate works well around 8%, where it is calibrated, and misses at the extremes. At 2% it announces 36 years when the exact answer is 35.0.

The CPI is not your inflation

One closing caveat, because it is the legitimate criticism of the figure. The CPI is a weighted average of collective household spending. Your personal basket is not the average basket: if a large share of your income goes on rent, energy or food, and those are precisely the groups that rose most, your inflation was higher than the published one, even though the index is correct.

That does not invalidate the CPI, which does well what it is asked to do: be a common, comparable, auditable measure. Spanish law uses it as a reference, and the INE additionally publishes a specific index for updating residential rents, precisely because the general CPI was not considered the right reference for that contract.⁴

To put numbers on your own case, the inflation calculator projects what an amount will be worth in a few years at whatever average rate you choose, and returns both readings: the real value of your money and the equivalent future cost of what you want to buy today.