Have you heard of the Independent Fiscal Responsibility Authority? The Airef warns of the impact of inflation on the cost of debt: there are 65,000 million bonds linked to it, with seven hundred million more for each point.

Inflation wreaks havoc on macroeconomic forecasts and so will debt.

The president of the Independent Fiscal Responsibility Authority (Airef), Cristina Herrero, has indicated that there are 65,000 million euros of debt linked to inflation.

With each additional point of inflation, the interest cost of these bonds rises by seven hundred million euros.

Herrero highlighted these data in his speech at the Summer Course of the Association of Economic Information Journalists (APIE) and BBVA, at the Menéndez Pelayo International University, in Santander.

Independent Fiscal Responsibility Authority

The president of the agency has emphasized the effects that the price increase has on the health of public accounts and the high uncertainty that exists to make accurate calculations.

In the field of inflation, Smith has pointed out that, in the short term, the increase in this statistic increases the revenue of the public purse of around 2,000 million euros for each point, but also raise the interest of the debt linked to this, and also has an effect on the public accounts to increase other payments, such as pensions, 1,500 million for each point, with a forecast of 8.8%.

The forecast of a rate hike by the European Central Bank (ECB) will also be noticeable in the increase in the costs that the state will have to face in debt repayment.

In this sense, he pointed out that the rate hike has an impact of 12,000 million euros on the payment of interest on Spanish debt.

Herrero explained that they compared the current situation with the pronouncement they made a year ago when they expected that an increase of one hundred basis points in rates would influence the increase in the cost of debt and that a year later, in fact, they have had to say that this has been fulfilled. We compared it to our pronouncement a year ago.

Independent Fiscal Responsibility Authority issue

The supervisor has specified that he estimates an increase in the average issue rate of more than one hundred basis points, which would raise the implicit rate forecast by three tenths (up to 2.3%), the financial burden by four tenths of GDP (up to 2.4%) and interest expense by more than 12,000 million euros in 2025. From now until that year, the burden will increase by 20,000 million.

Now, Herrero has explained that the European Central Bank has talked about increasing twenty-five basis points in June and "predictably" another 25 in September but has warned that "it is very uncertain what may happen."

Independent Fiscal Responsibility Authority increase

This, the president of the Airef points out, will have a "significant" increase in the cost of inflation. "It is a very uncertain context, and it will depend on how much the European Central Bank raises interest rates and how it is carried out," he said.

What is the Independent Fiscal Responsibility Authority?

The Independent Fiscal Responsibility Authority of Spain is an independent fiscal control body whose objective is to guarantee the principle of budgetary stability, as well as the financial sustainability of the country.