It was not a surprise, but the data is just as strong. Inflation in June has moderated to 1.9%, which is its lowest level for two years and Spain has become the first major economy in the euro zone to reduce the below 2%. 2% which, remember, is the figure that the ECB has as a large reference figure. The disadvantage for Spain is that the central bank will take into account, to decide on rate hikes, inflation in the Eurozone, which is much higher than in Spain.
In any case, the data presented yesterday by the National Institute of Statistics (INE) represents a drop of 1.3 points in the interannual CPI compared to the previous month. As we pointed out, you have to go back to the spring of 2021 to find a lower rate. That is to say, it goes back to the period before the beginning of the current inflationary crisis, first started by the outbreak of the pandemic and then, finished by the war in Ukraine. Since April 2021, we have suffered an escalation in prices until they reached the ceiling last summer, and since then, a moderation has begun that has finally brought them to 1.9% in June.
The causes of this pronounced drop are the moderation of fuel prices, electricity and food prices, since they have risen less than in June of last year. In this slowdown in prices, the statistical effect has a large part of its influence, since the year-on-year data is obtained by comparing it with the inflation rate in June of last year, when it was at very high levels.
The Ministry of Economy points out that Spain is the first country among the large economies of the euro zone to reduce inflation below 2%, and that in this way it remains one of the large countries with the highest inflation leave of the European Union, with a gain in competitiveness and market share for Spanish companies. “It is an important relief for the pockets of families”, said yesterday the first vice-president and Minister of the Economy, Nadia Calviño, who added that “beyond the base effect, we see a trend towards price moderation in our country that places us in a positive situation for the second part of the year, regardless of the situations that may arise in a month or two.”
In this way, the trend towards moderation in inflation is confirmed, which is expected to continue throughout the summer. We remember that between June and August last year, prices remained above 10%, which now, due to the base effect, will help to achieve lower rates. However, the forecast is that there will be a certain upswing from September, so that the average inflation for the year could be around 4%.
For its part, the underlying inflation rate, which does not include energy or fresh food, stands at 5.9% year-on-year, a reduction of two tenths compared to May and which is the lowest rate in a year . An underlying that, despite the fact that it is moderating, is doing so at a very slow pace, and it was almost a year ago that it was above 6%, a barrier that has now finally fallen below. This inflation, which better represents underlying trends and has a much lower degree of volatility, is known to move only very gradually.
“The most relevant is the underlying inflation. It is to which the ECB pays attention, and it is confirmed that the downward trend will continue. Although there may be some upswing in August, the tendency is to moderate”, explains María Jesús Fernández, from Funcas. For his part, Miguel Cardoso, chief economist for Spain at BBVA Research, indicates that “much of the drop in inflation has to do with a few goods, basically electricity and fuels, but that it is already beginning to be transferred to other industrial goods, which is a positive fact”. He also adds that his forecast is that inflation will continue for the next three months, from June to August, below 2% and that after the summer it will increase due to the base effect.
It is the volatility to which general inflation is subjected throughout this year when compared to a 2022 shaken at the beginning by the war in Ukraine, and an exponential rise in energy prices, which gradually dragged down the rest of the products. It is based on this comparison that the interannual CPI has fallen to 1.9% this month, which will remain at similar levels during the summer, and which will increase again in the last months of the year.
