What was expected happened, a spectacular drop in year-on-year inflation, which went from 6% in February to 3.3% in March, the lowest rate in a year and a half. But it is necessary to put the data in context. This reduction is closely related to a statistical effect. Year-on-year inflation is obtained by comparing this month to March last year, and this was the month in which energy prices skyrocketed as a result of the war in Ukraine. Inflation hovered around 11% that March.
And while general inflation plummets due to this so-called stagger effect, the underlying one, which does not take into account energy or fresh food, only drops by one tenth and stands at 7.5%. The good news is that it is slowing down, after stringing together four consecutive months on the rise; the not so good is that it remains at a very high level, which shows that underlying inflationary pressures are still present.
Headline inflation of 3.3% has been arrived at after comparing falling energy prices this month with an 18% rise in March 2022. This base effect will put significant downward pressure on inflation this first half of the year, so it will cause a rollercoaster of results. For example, it is expected to rise again in April and fall in June.
In any case, the good data from March is not the end of the inflationary tension. “Core inflation remains high, and although it will probably start to decline from now on, it will be gradual. On the other hand, towards the end of 2023 we will have the opposite base effect on energy prices due to the large drop in the latter part of 2022, which will push inflation upwards”, says Talavera, economist at head for Europe from Oxfords Economics.
For her part, MarÃa Jesús Fernández, from Funcas, points out that the data for March does not mean that there has been “an abrupt change in the behavior of prices”, and points to the fluctuations that we will observe. “In April the rate will go up again, there will be fluctuations up and down throughout the year, due to statistical effects”, adds Fernández.
This large fluctuation in general inflation that will be seen in the coming months is what also explains the repeated statements of the First Vice-President and Minister of the Economy, Nadia Calviño, that this first part of the year is expected “a high volatility’ of inflation, as the year-on-year rate will be compared to the most turbulent times at the start of the war.
On the other hand, underlying inflation has fallen by one tenth compared to the previous month, and stands at 7.5%. It is the first decline, albeit minimal, in this type of inflation since last September. In this way, there have been four consecutive months with underlying inflation above 7%. It is a less volatile indicator than general inflation, and its high rate is a sign of the fact that inflationary pressures are still present.
“This drop in the underlying is a relief, even if it’s only one tenth. It indicates that there is still inflationary tension, but not at previous levels”, says MarÃa Jesús Fernández, from Funcas. It is expected to decline very gradually, with a limited rebound during the summer months.
On the other hand, it is expected that the price of food will continue to rise, although the data advanced yesterday by the INE does not provide this level of detail and we will have to wait for the full version, on April 14. Food has become the big problem in inflation, both because of its record increases of more than 16% in February, and because there is no room to avoid buying it, and in addition because of the impact they have on lower incomes. While the controversy continues about the transfer of costs from companies along the food chain and the Central Government announces surveillance measures that do not materialize, everything indicates that they have not yet reached the peak of the rise.
The Ministry of Economy highlights the good performance of electricity and fuels this March, which have continued to fall. “The sustained drop in the price of electricity thanks to the Iberian solution and the other measures adopted has been key for Spanish inflation to be among the lowest in Europe”, they say.
Meanwhile, unions insist that the high levels of the underlying show that companies have passed on costs to final prices. “The Spanish Government must take more measures to redistribute wealth”, said the general secretary of CC.OO., Unai Sordo. Based on this inflation data, the UGT demanded that the CEOE sit down to negotiate the salary increase.
