After last month’s rise, inflation continues its trend towards moderation, falling nine tenths in April and standing at 3.2%, its lowest level for almost two years. You have to go back to July 2021 to find an inflation rate below. It is the drop in fuel prices that fundamentally explains this moderation, and also, although to a lesser extent, the fact that the rise in food prices has been less than in May of last year.
In the last three months, we have gone from a sharp drop in March, to a rebound in April, and now again, to a slowdown in May, according to data released this morning by the National Statistics Institute (INE). A 3.2% year-on-year inflation rate that is far from the figures with which we started 2023, and which, according to forecasts, could lead to average inflation this year of around 4%.
The fundamental reason for this volatility must be found in the so-called base effect, the comparison of prices with those of the same month last year, when, as a result of the invasion of Ukraine in February, there was a sharp rise in the prices of energy, with strong fluctuations from one month to the next.
“Inflation falls in line with expectations, again due to the favorable effect of energy prices. We should see inflation continue to fall below 3% or even 2% in the coming months, but it will pick up again towards the end of the year. of the year,” says Ãngel Talavera, of Oxford Economics.
This is the trend that economists point to after today’s data, a drop in inflation that will continue to decline, especially in June and July. Then it will rebound. “It has fallen due to the step effect in energy products. Last year there was a lot of volatility in energy products and when making the year-on-year comparison this moderation occurs. In June it may be below 2%, although it will go up again later,” explains MarÃa Jesús Fernández, from Funcas.
On the other hand, core inflation, which does not take energy or fresh food into account, has also moderated. Half a point below that of April, which stands at 6.1%. This is the third consecutive month that this type of inflation has eased, which is considered to be much less volatile than general inflation and, therefore, better shows underlying price trends. It takes longer to go up but, once up, it also takes longer to go back down. The economist Ãngel Talavera considers that the moderation of the core is probably due to the fall in the prices of processed foods, given that “the prices of services are going to remain high during the summer season.”
In the Spanish economy, it was in December of last year when the underlying rate exceeded the general inflation rate, staying above 7% for four consecutive months, and moderating only from April. However, underlying inflation will remain at high levels, with an average for the year expected to remain around 6%. It is the palpable sample of how the inflation of the energy was transferred to the group of the products.
“Inflation is in Spain, already around 3% and even below, if we take the CPI harmonized with Europe. The inflation data for May confirm the effectiveness of the government’s measures, the moderation of food prices, the drop in fuel prices, and position our country as one of those with the lowest inflation in the European Union.” says the First Vice President and Minister of Economy, Nadia Calviño.
The data points to a moderation in the price of food, which have been the products that, with a very strong escalation, have had a very direct impact on the pockets of citizens every time they visited the supermarket. The forecast is that the price of food already bottomed out in April, when it moderated to 12.8%, after six months with increases above 15%. The data handled by Funcas point to this moderation in food prices, which is taking time due to the delayed effect with which the reduction in energy is transmitted through the production chain in the food industry.
However, “there are risks that affect this forecast, such as the drought and the impact it will have on food,” says economist MarÃa Jesús Fernández.
Based on these advanced inflation data for May and the most complete data that the INE will publish in two weeks, the Government will decide whether to extend some of the measures in force against inflation. This is the case of the reduction in VAT on some basic foods, which has been applied since January and which, in principle, expires at the end of June, although the Government can extend it. The Executive also has to decide whether to maintain the fuel discount for transport professionals. Decisions that it has to make due to strong pressure from the European Commission which, with its sights set on restoring fiscal rules next year, has demanded that Spain withdraw aid to combat inflation in order to reduce a very high debt.
