After the rebound in the first month of the year, in February prices moderated again, standing at 2.8%, a reduction of six tenths. In this way, inflation is below the 3% barrier for the first time in the last six months. Two elements intervene in this moderation, one is the drop in electricity prices and the second is that food has remained stable, when in February of last year food experienced a large increase.
If in January the partial withdrawal of anti-inflation aid was paid predictably, in February the good news came from electricity, with a drop in its price that has played an important role in this brake on inflation. In the wholesale market, the price of electricity this month has been below 42 euros/MWh, much lower than its level in February 2023, and also below the prices of January of this year. The reasons for the fall in electricity prices must be found in a reduction in electricity demand and greater generation of cheaper, renewable energy.
Another element that explains the moderation in prices is the very important step effect of food. It must be taken into account that in February 2023 food prices rose a lot, to the point of reaching their maximum, an increase of over 16%, and in the comparison between February of this year and last year, part of of the brake on the rise of the CPI this month. Since that peak a year ago, food has been moderating, although it remains at very high levels. Last month they even rose one tenth, reaching 7.4%.
In this way, inflation is at the lowest level since last August, when it stood at 2.6%. In September it escalated and in the last five months it has always been above 3%, except now, in February, when it has fallen to 2.8%.
“With the sharp fall in the price of electricity we expected inflation to drop even further and remain below this 2.8%,” says María Jesús Fernández de Funcas, who calculated that this rate would be reached simply due to the effect step with food. And that with the push of wind energy this month of February, the CPI could slow down further.
On the other hand, core inflation, which does not take into account energy or fresh food, fell two tenths, reaching 3.4%, the lowest in the last two years. Therefore, the moderation of this indicator continues, which is considered to represent the underlying trends well, as it is less volatile. “It is good news, the underlying continues its downward march, even if it is a little slow,” says Fernández.
For the Ministry of Economy, these data show that “households are being allowed to recover purchasing power and companies to regain competitiveness,” and they also add that price moderation is compatible with the social shield.
By March, inflation is expected to rise again, and the reason will be the increase in VAT on electricity due to this surprisingly rapid reduction in the cost of electricity. Starting tomorrow, electricity will be taxed with a VAT of 21% compared to the current 10%, which the Government set since the beginning of the year. This earlier-than-expected return to the usual taxation of electricity is due to the fact that the executive’s decision was to place the VAT at 10%, but conditional on the price of the megawatt hour (MWh) in the wholesale market being maintained for above 45 euros. As this month the price will be below the set ceiling, the VAT will have to be raised to the usual 21%. A decision that this Tuesday the Minister of Economy, Carlos Body, confirmed when he said that the measures “have to continue their course.”
