The drop in fuel prices and the better performance of food have allowed inflation to remain at 3.5% in October. A better than expected figure because most analysts expected a more or less significant increase in the rate. This interrupts a chain of three consecutive months of price increases, from the minimum of 1.9% in June to 3.5% in September, which has now stabilized.
For its part, core inflation has reduced six tenths to stand at 5.2%, which is the lowest rate since May of last year, according to the advance CPI data published this morning by the INE.
Regarding the stabilization of general inflation at 3.5%, three factors are decisive. On the one hand, fuels and food that push downwards, and on the other, electricity that pushes downwards; so that they compensate each other.
Specifically, fuel prices have reduced, while food prices, although increasing, the increase is less than in the same month last year. On the other hand, electricity has acted in the opposite direction, with prices falling, but less than in October 2022.
In this case, the increase in electricity is largely determined by the base effect, when compared to electricity prices from October of last year, when it experienced a sharp drop.
“There is a underlying trend of disinflation, limited by the step effect,” says Raymond Torres, from Funcas, who also points to another risk in this reduction in inflation, the impact that a withdrawal of support measures may have from January Issue that the Government has yet to decide.
For his part, Miguel Cardoso, from BBVA Research, points out that “the data is positive, better than we expected. The negative surprises in August and September came from oil, the rest of the prices have stabilized,” says Miguel Cardoso, from BBVA Research. BBVA Research, and adds that “a scenario of a medium-term fall in inflation is beginning to consolidate, although it will be slow.”
Ángel Talavera, from Oxford Economics, considers it “a good piece of information, given that an increase in the interannual rate was expected due to the rise in energy prices. The best news is that underlying inflation continues its downward trend, which in addition, intensifies in October, probably driven in part by lower increases in processed food prices. With these data, he expects the inflation figure for this year to be around 3.6% or 3.7%, less than half of that registered in 2022.
With this advance data, the increase in pensions next year is taking shape. Funcas’ calculations are that they would increase by 3.8%, because it would be the average of interannual inflation between December 2022 and November of this year. It is in line with the Government’s calculations of an increase of around 4%, but everything will depend first on whether this advance data for October is confirmed and then on November inflation.
In this way, the picture of 2023 looks like that of a year with a start with high inflation, around 6%, which reached its lowest level in June, below 2%, which is the reference figure. for which the European Central Bank is fighting, to since then begin a gradual increase, which now, in October, has stabilized at 3.5%.
One of the reasons for these variations is the so-called base effect. As the year-on-year rate is set in comparison to the same month of the previous year, given that in October 2022 prices were moderating, the rate now increases further.
For its part, core inflation, which does not take into account energy or fresh food, continues to decline. They were three tenths less in September and now they are six less, reaching 5.2%. This rate is key because, being less volatile, it is considered to mark the underlying trend of prices.
The Ministry of Economy highlights that “Spain is consolidating itself as one of the main economies in the euro zone with lower inflation and greater growth in the entire euro zone” and that “the measures adopted are favoring the competitiveness of Spanish companies.”
The behavior of prices in these months will be a determining factor for the Government to decide at the end of the year whether to fully or partially extend the aid in force to stop inflation, which includes both tax reductions on energy and VAT on food. , among other initiatives. The Government has the dilemma of maintaining them to help families and companies or, as both Brussels and the Bank of Spain demand, eliminate them to reduce spending and return to fiscal discipline.
In the budget plan, the cost of the set of fiscal aid in energy and food is quantified at 5,000 million if they were maintained in 2024, a decision on which the Ministry of Economy is currently refusing to comment.
