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What is the CPI? 2022 Everything you need to know before renting

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What is the CPI? 

If you have lived for rent in Spain, you will have noticed that in each annual fulfillment, the rental of homes goes up or down thanks to the CPI. As in this year that reached 8.7% increase in rents. Why is there this rise? What exactly is the CPI? 

The purpose of the Consumer Price Index (CPI) is to provide a statistical measurepopulation residing in family homes in Spain.

This index is prepared by the National Institute of Statistics  (INE) following a methodology that takes a large number of variables. 

For the calculation of the CPI, goods and services are called products. The general structure of the CPI basket comes from the Family Budget Survey (EPF), whose objective is to find out household spending broken down according to the goods and services they consume.

The basket is made up of 303 products and they are distributed in 12 divisions, from basic products such as bread and rice, to recreational services, such as sports shows and movies or television. Around 127,000 prices are registered . If you are interested in the subject, you can expand more information in this official report for the year 2021.

In summary, we can say that the Consumer Price Index (CPI) is an economic indicator prepared and published by the INE, which measures month by month the joint variation in the prices of a basket of goods and services representative of household consumption in the country.

This indicator is frequently used to readjust rents, credits, wages and salaries, and different public and private contracts. In addition, it is used to adjust various tariffs regulated by the authority such as basic services, for example, electricity and drinking water, collective locomotion, among others.

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How has the CPI evolved in 2022? 

The estimated annual inflation of the CPI in May 2022 is 8.7%, according to the leading indicator prepared by the INE. This indicator provides a preview of the CPI which, if confirmed, would mean an increase of four tenths in its annual rate, since in April this variation was 8.3%. This evolution is  mainly due to the fact that the prices of fuels and food and non- alcoholic beverages rise this month more than in May 2021. Also noteworthy, although in the opposite direction, is the decrease in electricity prices, compared to the rise from last year. For its part, the estimated annual variation rate of core inflation (general index without unprocessed food and energy products) increased five tenths, up to 4.9%. If confirmed, it would be the highest since October 1995.

Spain and the world have been involved in inflation and sensitive economic situations. All this because of the war in Ukraine and the fact that the world is still recovering from the COVID-19 crisis.

To put ourselves in a better context, I must mention that since 2013 the CPI was 0.3% and until 2019 the variation never went above 1.5%. However, in 2020 the CPI went from 6.5% to 8.7% in 2022. These data reflect the delicate situation in Europe in general.

The rentals suffer an increase in the monthly rent each year once the contract has completed a full year, as stated in the current Urban Leasing Law (LAU).

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How does the CPI affect my rent? 

The updating of the amount of the rent, unless the owner and the tenant have freely agreed to another figure, will be the one indicated by the CPI of the National Institute of Statistics.

Each month in arrears, the INE publishes the CPI for the complete annual periods.

Which CPI rate affects the rental contract: the increase of the previous month or the year-on-year growth? The increase in rent based on the CPI must take as the reference month the month that corresponds to the last index published on the date the contract is updated.

The limitation on the rise of the CPI

The Government has set a temporary limit of 2% in the annual update of the rent of housing rental contracts that must be updated during the time that remains of this year 2022 . These will not be governed by the revision of the CPI, but by this extraordinary ceiling of 2%.

Unlike the IGC, the Consumer Price Index can help you pay less for your rental home when this reference scale falls from one year to the next. These are the so-called stages of deflation or negative inflation, as, for example, occurred in 2020 as a result of the global crisis caused by the COVID-19 virus. Therefore , it is very important that you know how the impact of the CPI is calculated on the monthly payment that you charge your tenant and vice versa.

The easiest method to find out how much the CPI can influence the cost of your rented apartment or premises is to visit the website of the National Institute of Statistics and use the online instrument that this official body has available and that, by simply entering the amount that you pay monthly for your rent and a period of time, it will offer you the final figure and the CPI from which the calculation has been made.

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How does the CPI affect landlords? 

When dealing with the CPI issue, it is important to be able to empathize with the owners and put ourselves in their shoes. Many users and tenants have claimed landlords for high rent increases . However, we must remember two things: that the owners are also affected by this measure and that they are within their rights, as demonstrated in the LAU, to raise or lower the rent depending on the CPI.

Surely in the coming years this CPI is going to regularize to previous levels. Let us remember that we are living in particular moments due to the increase in supplies and energy due to the current war.

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