This cumulative rise in the Harmonized Index of Consumer Prices (HICP) excluding energy and food, measured over the three years July 2019 to July 2022, stood at 6% for the euro area and 5.3% for Spain when considering the pre-pandemic three-year period. These figures reflect a stronger trend than the roughly 3% increases observed in both areas during that same pre-pandemic window.
This trend is highlighted in the Bank of Spain’s report titled The latest evolution of core inflation in the euro area and in Spain, published on a Monday, which notes that core inflation pressures have become more pronounced in the euro area and Spain, driven by persistent rises in production costs and, in part, by effects related to the pandemic.
In the eurozone, core inflation has followed a distinctly upward trajectory, reaching levels never seen before in the history of the Economic and Monetary Union (EMU). Core inflation remained at 4% in July 2022 after peaking in late 2021, when it surpassed 2.5%.
All nineteen member states exceeded a 3% core inflation rate; in some countries, such as the Baltic states or Slovakia, it exceeded 8%. Spain, too, has seen a sharp rise in core inflation since the middle of the previous year, standing at 4.6% in July 2022.
More emphasis on entertainment, restaurants and tourism in Spain
Spain experienced a notably larger contribution from leisure, dining out and tourism to price increases last year than the euro area average, driven by both higher price movements and a heavier weighting of these sectors in the consumption basket.
By contrast, transport-related items contributed slightly less to inflation in Spain than in the euro area overall.
Specifically, Spain saw a stronger relative increase in prices for entertainment, restaurants and tourism, rising 8% by July, compared with 7% for the sub-index on Equipment and Housing Care, and 5.6% for Transportation.
Considering the cumulative three-year increases, the most pronounced rise is observed in the Housing sub-index at 9%, while the annual increase in the Entertainment, Restaurant and Tourism index accumulates to 7.9%.
From the Bank of Spain’s perspective, Spain’s overall inflation included a 1.6 percentage point rise in July 2022, compared with a similar point in the EMU. This sector accounts for about 20% of consumer spending in Spain, versus around 16% in the broader European Economic Policy base (EPB) measure, according to the institution (Bank of Spain).
Moreover, the contribution of Transport to Spain’s overall inflation is slightly lower than in the euro area or in France and Italy, at 0.4 percentage points, compared with 0.6 percentage points in the euro area as a whole. This difference reflects not only slower price growth but also the lower weight of transport components in Spain, at 7.6% versus 10.2% for the EMU measures.
In Germany, public transport subsidies have led to a 60% annual reduction in combined passenger transport prices, leaving the Transport sub-index’s contribution to general inflation almost zero in June and July, compared to 0.8 points in May, as explained by the Bank of Spain.
Factors behind the rise in core inflation
Key drivers identified by the Bank of Spain for the rise in core inflation include higher costs for raw materials, increased housing expenditure, ongoing bottlenecks, reopening effects, and price dynamics that outpace the target for expenditure.
The Bank of Spain notes that the persistence of these gains in the most stable inflation components remains uncertain. It argues that a relatively modest response in wages and operating margins to current inflationary pressures will be essential to prevent persistent inflationary forces and the risk of runaway dynamics (Bank of Spain).