The last days of March came as a positive surprise, with inflation falling to 3.3% year-on-year, almost half from the previous month and three times less than in 2021, according to the leading indicator published by the National Institute of Statistics. . However, it’s not all good news. Analysts state that this sharp reduction is due to the base effect, that is, prices rose very high in the same month of last year, especially due to the 18% increase in energy prices. Therefore, in the coming months there will be periodic increases in the consumer price index (CPI), this is something that will not happen with the underlying dataenergy and unprocessed food prices are excluded. “The maximum may have been reached, but the decline will be slower,” says Manuel Hidalgo, senior researcher at EsadeEcPol.
In a month, core inflation fell one-tenth to 7.5% “But even though they were higher than usual before this inflationary epidemic broke out,” explains María Jesús Fernández, senior economist at Funcas, “this moderation does not mean that it will remain so in the future.” The fall in energy prices, especially gas, the normalization of supply chains and the appreciation of the euro were the downward drivers of these external inflationary pressures. If the trend continues, forecasts point to below 5% inflation for December of this year, but it depends entirely on the international context.
Within these external factors, there are two well-differentiated faces. On the one hand, gas and fuel prices have stabilized and are expected to continue falling, although any escalation of the war in Ukraine could reverse this situation. On the other hand, the rising cost of food does not stop. In March, they reached a record level of 16.6%., partly due to products that continue to rise, such as milk, eggs and wheat. “Many seem to have reached their maximum,” Hidalgo says, but warns that if the temperature continues to rise and the drought worsens, factors that drive the cost of producing food, such as oil, could continue to rise.
Volatility in headline inflation
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Regarding general inflation, Ups and downs expected throughout 2023 due to base effect. “Since there was so much fluctuation in energy prices last year, there will be a few such impacts throughout this year, some months up and others down,” Fernández summarizes. An example of this will be April, but this time it is on the rise because after the 18% increase in the energy price in March 13% decrease in April“Thus, the increase in April of this year will be reflected in inflation.”
Sudden changes in the CPI will also result from government aid: “Prices remained stable in the second half of 2022 with government assistance, mainly through subsidies,” recalls Pablo Duarte, a senior analyst at the Flossbach Research Institute. von Storch, such as the one about the price of fuel. In the positive scenario, Inflation will continue to drop to 3%, but could rise to 6% if things get complicated.. “Prices remain inflationary dynamics and it will not be easy to control them,” Duarte says, especially due to the European Central Bank’s (ECB) announcement that financial conditions will be more careful when making its next monetary policy decisions. For now, the Spanish data is one of the first in Europe, “so if it serves as a reference, it could mean a respite for the ECB,” explains XTB analyst Joaquín Robles. That same month, the agency increased interest rates by another 50 basis points, and rates are expected to soften due to good data, according to the XTB analyst.