The drop in the price of food and electricity explains the moderation of six tenths of inflation in February to 2.8%. It is confirmation of the data advanced by the INE two weeks ago and which places inflation below the 3% limit for the first time in the last six months. In this way, after the rebound in January, when the price was paid for the withdrawal of part of the anti-inflation measures, in the second month of the year prices have moderated again.
It is good news with an element of concern, the increase in inflationary pressure in services, with the doubt of whether it is punctual or will set a trend.
In the data published today by the INE, the moderation in food prices stands out especially, which fell by more than two points to stand at 5.3% year-on-year. It is the lowest rate for two years, since January 2022, that is, before the start of the war in Ukraine, which was one of the elements that caused the rise in prices that we still suffer. The truth is that the price of food remains intact compared to the previous month, but when compared to February 2023, when they reached their maximum level, above 16%, the result is a drop of 2.1 points.
This moderation is mainly due to the decrease in the prices of legumes and vegetables and meat, which increased in February 2023. In addition, fruits, bread and cereals and mineral water, soft drinks, fruit and vegetable juices, although they have increased, they have done so to a lesser extent than in the same month last year.
For its part, olive oil remains unbeatable for another month, and it is the product of the entire INE basket that increases the most with 67% year-on-year.
A significant fact is that just as unprocessed foods decrease, the same does not happen with processed foods, which increase 8 tenths compared to the previous month. “In unprocessed goods, inflationary tension remains,” says María Jesús Fernández, from Funcas.
Another key element has been the drop in the price of electricity. Electricity prices have fallen dramatically during the month of February, thanks in large part to the boost provided by wind energy. In February, in the wholesale market the price of electricity was on average 40 euros/MWh, well below both the prices of the same month in 2023 and January of this year. Less demand and more generation of renewable energy, especially wind, explain it. A drop so forceful that it had a collateral effect, the return as of January 1 to the VAT of 21% on electricity compared to the 10% that was set at the beginning of the year. This reduction was conditional on a minimum wholesale price that has been exceeded.
“Energy and food will become more important in the coming months. In January and February we have seen the direct impact and in the following months the indirect one will appear. How the impact is being transferred to, for example, sectors with intensive use of energy,” says Miguel Cardoso, chief economist for Spain at BBVA Research.
Regarding core inflation, which does not take into account energy or food, it only moderated by one tenth this month, to 3.5%. In this case, it is one tenth above what the advance data from the INE itself had calculated.
One of the reasons for the resistance of the underlying to moderate can be found in services, which have increased by 0.8 in a month-on-month rate. “The most striking thing about today’s data are services, which seemed to be moderating, but which show a reinvigoration of inflationary pressure,” says María Jesús Fernández, from Funcas, who points out that this could be a consequence of the second round effects on salaries and margins, or it could be a specific acceleration due to price adjustments that are usually made at the beginning of each year.
Looking to the immediate future, BBVA Research’s forecast is that general inflation will continue at rates above 3% until the summer and that only in the second half of the year will it drop below this figure.
In view of these data, the Minister of Economy, Carlos Body, has stated that “what we see is that the evolution of differential growth above our partners is being compatible with a moderation of prices and also with the support of the social shield to those most in need, in this case both families and homes”. In this sense, he recalled the upward revision of the growth forecast for this year to 1.9% that the Bank of Spain made this week, at the same time that it lowered the inflation forecast to 2.7%.
