(Bloomberg) -- Spain’s economy minister warned that soaring energy costs could hit company competitiveness and hurt households as she reiterated calls for bolder European Union action to curb a price surge that shows no signs of abating.
Nadia Calvino, who is also deputy prime minister, said that costly tax breaks to contain energy bills are “not a long term solution.” EU institutions should tackle wholesale prices directly to confront malfunctioning power markets, she added, highlighting that Spain is also pushing for centralized gas purchases.
“I am quite concerned about the increase in energy prices because it is the main underlying factor driving up the general price level and it also has a direct impact on production costs, and therefore on competitiveness of our companies,” Calvino said in an interview. “I really hope that there will be clear action or more decisive action in the first part of 2022.”
The energy squeeze is threatening Europe’s post-pandemic recovery as the once-in-a-generation hit to living costs it has inflicted, sending inflation to the highest since the creation of the euro, makes consumers less inclined to spend. Wholesale gas prices are up almost 300% in the past year.
Calvino stressed that action on prices shouldn’t extend to a response by the European Central Bank to remove stimulus prematurely, a move she warned could imperil the recovery.
“I firmly believe that we should avoid a premature withdrawal of support measures, so as not to make the same mistake of the previous financial crisis,” she said.
Inflation hit a new 30-year high in Spain in December. That should ease in coming months as base effects dissipate and supply chains normalize from the pandemic’s shock, Calvino said.
Unlike the U.S., price increases in Europe have not yet passed through to wages because of lower inflation expectations and wider labor market slack, Calvino suggested, making the need for continued economic support all the more crucial.
“There are still uncertainties around us,” she said. “Our top priority right now should be to support the economic recovery and job creation.”
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