The March data ushers in a nuanced view of inflation
The tail end of March brought a welcome signal: year-on-year inflation slipped to 3.3%. This drop is striking, nearly halving the previous month and standing at about a third of the level seen in 2021, according to the leading indicator published by the National Institute of Statistics. Yet caution remains. Analysts note the sharp decline largely reflects a base effect—the year-ago month featured unusually high prices, especially an 18% surge in energy. Looking ahead, periodic upticks in the consumer price index (CPI) are anticipated in the coming months, a trend that will not mirror the underlying data when energy and unprocessed food price movements are stripped out. As Manuel Hidalgo, senior researcher at EsadeEcPol, puts it, the maximum may have been reached, but the downward pace will be slower.
Core inflation shows a different rhythm. In a single month it dipped by a tenth to 7.5%. Yet experts emphasize that even this softened pace does not guarantee a sustained decline. María Jesús Fernández, senior economist at Funcas, notes that the moderation observed does not imply a permanent shift. The recent reduction is linked to several external factors: lower energy costs, particularly gas, smoother supply chains, and a firmer euro. If these conditions persist, forecasts point toward inflation drifting below 5% by December of this year, though much hinges on the global context.
Within the realm of external factors, two distinct narratives emerge. On one side, gas and fuel prices have stabilized and are expected to fall further, provided there is no renewed escalation in the Ukraine conflict. On the other side, food costs continue to rise. March data revealed a record 16.6% increase in food prices, driven by staples such as milk, eggs, and wheat. Hidalgo observes that many food prices may have peaked, but warns that a hotter season and worsening drought could keep production costs, including oil, under pressure and push food prices higher again.
Volatility in headline inflation
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Forecasts for general inflation in 2023 point to a pattern of fluctuations driven by the base effect. Fernández explains that the energy price swings from last year will likely imprint several similar impacts this year, with some months showing increases and others declines. April is anticipated to show a renewed rise as energy costs shifted: an 18% jump in March leads to a 13% fall in April, with the April uptick feeding into overall inflation.
Shifts in CPI are also linked to government aid. Duarte notes that price stability in the second half of 2022 benefited from subsidies, including fuel assistance. In a positive scenario, inflation could drift toward 3%, but it could climb to 6% if new pressures emerge. Ongoing inflationary dynamics complicate efforts to rein them in, especially in light of the European Central Bank’s stance on tightening financial conditions in future policy moves. For now, Spanish data is among the early indicators in Europe, which analysts interpret as a potential reference point that could influence ECB expectations. In the same period, analysts at XTB observed that rates rose by another 50 basis points, with expectations of easing later if data remain favorable.
Source attribution: National Institute of Statistics; Funcas; EsadeEcPol; Flossbach Research Institute; XTB; European Central Bank commentary. These sources are cited to reflect the range of expert perspectives shaping the inflation narrative for the region.