The INE has published the final CPI data for July. It is 2.3% at the general level and 6.2% at the underlying level, above the previous month (1.9 and 5.9, respectively). An intense streak of falls is broken. There should be no panic, the general trend continues to be moderation.
The Bank of Spain forecasts are for general inflation of 3.2% at the end of 2023 and 3.6% in 2024 (with the underlying inflation at 4.1% and 2.1%, respectively). Funcas, for its part, estimates an interannual variation of the general CPI in December 2023 of 3.9% and in 2024 of 3.4%. The rise in these months is due to base effects linked to energy and the persistent rise in food prices (10.8%). It will remain somewhat elevated in 2024 due to the planned withdrawal of government measures in response to the war in Ukraine. However, we see that prices are considerably lower than when they peaked in 2022, but refueling today is still significantly more expensive than two years ago.
Despite the rebound, the situation is favorable and moderate. If compared to the Eurozone, Spanish inflation has been lower for some time. Partly due to the greater intensity and speed of the slowdown in energy prices. The underlying CPI spread is also more favourable. Spain also presents greater wage moderation –compared to Germany and neighboring countries– which would contribute to lower price growth in services.
These Spanish virtues contrast with the application of the same restrictive monetary measures as in the rest of the euro area, with higher inflation. That is why the ECB was created, for a single monetary policy. With its advantages but also with some negative side effects, as is the case now. What will happen next? There could be a pause in rate hikes in September, but no one can rule out further hikes (one or two more, 25 basis points). Even more so if inflation takes time to return to the ECB reference, 2%. The growth of the Euribor and other types of markets would cool the European economy even more. The job market seems prepared to hold out for a while.
It is probable that the increases in the price of money –or the prolongation of high rates– will continue as long as the inflation reference level does not return. It’s like a half-inflated float. When it comes to stepping on a part of the plastic (for example, energy prices) others go up (such as rents, textiles, or processed foods). This means that keeping the entire float half inflated and balanced may require more than two hands.
For this reason, we have monetary policy doing part of the effort, but fiscal policy must also be consistent with its share of responsibility and apply measures that are not inflationary. And income policy (above all, wages and margins) must also play its role against price growth.
