In March of last year, the month after the Russian invasion of Ukraine, inflation shot up in Spain to 9.8% due to the acceleration registered by energy prices. At that time, the uncertainty was maximum and the European Union could not even know for sure if it had a guaranteed supply for this winter. In April the rise in prices slowed somewhat (it was 8.3% in year-on-year terms), after the Government approved the first package of urgent measures to counteract the effects of the war. However, from then on, the CPI began a continuous rise that led it to touch 10.8% in July, the highest level since September 1984.
Due to the base effect that will be generated by the comparison of the rates that inflation will mark in these coming months with those, a “high volatility” of the inflation rates can be expected, although this will remain at much lower levels than those of the past year . This is the main scenario handled by the Government and it would place the CPI variation rates at around half of those registered a year ago. They expressed themselves in similar terms this week from the Savings Banks Foundation (Funcas). In the latest revision of their forecasts, they warn that the energy effect can generate sawtooth inflation throughout the rest of the year.
So far, last month the components of inflation have once again evolved in a very heterogeneous manner. At CaixaBank Research, they highlight the fact that inflation (which excludes food in general and energy) remained relatively stable, with a variation of 5% year-on-year, barely one tenth above what it had registered in January. In contrast, food prices continued to rise sharply due to the strong rebound in fresh food, whose rate shot up to 13.4%.
The foregoing, while energy lost a significant drop in year-on-year terms, falling by 8.9%, six tenths more than in January. “The spread of high inflation rates in the consumption basket increased in February,” they explain in the entity, and also highlight how 33% of the consumption basket increased inflation above 10% last month, one point above that of January.
The prospects of international organizations also point to a moderation in the rise in prices for the coming months. The Organization for Economic Cooperation and Development cuts the general rate by six tenths this year and forecasts that after 2023 Spain will have the lowest inflation among the main European economies, at 4.2%, two points below what it contemplates for the eurozone. The same will happen with the core, the main headache for the European Central Bank (ECB) in the medium term.
The focus is on the base
The issuer, which closely monitors the market tensions caused by the bankruptcy of the US Silicon Valley Bank (SVB) and the Credit Suisse crisis, believes that inflationary pressures are still active and therefore remained firm and raised rates by 50 basic points at their last meeting, as planned. “There is not much improvement in underground inflation,” Lagarde warned at the press conference after the entity’s Governing Council meeting. In its quarterly projections, the ECB lowers the growth forecast for the general CPI due to the fall in energy prices and raises the growth forecast for the same reason and due to the reopening of China.
It places headline inflation at 5.3% on average (below the 6.3% anticipated in December) and core inflation at 4.6%. The improvement in these calculations is “surprising” given the latest inflation data and the increase in the GDP growth forecast for 2023, “especially since all the components of inflation, except energy, were accelerating at the beginning of the year.” , says Axel Botte, global market strategist at the manager Ostrum AM. The ECB notes that past rate hikes are already having a visible impact on credit demand and supply, which should ultimately slow price increases. “We have doubts about the possibility of a rapid decline in inflation,” says Botte.
For inflation to fully normalize and return to the ECB’s 2% target, a certain cooling of the economy and the labor market is still necessary, say Pimco, the world’s largest income manager. At the US firm they recall that, as in February, the trend of wage agreements continues to favor workers, and fiscal policy is largely considered “not very selective to avoid adding fuel to the inflation fire.” The economic resistance that the Eurozone is showing despite all these regrets continues to be a “blessing” that the issuer has found without looking for it.
In the Government they trust that the ECB is right with its monetary policy decisions and achieves its objective of placing inflation at 2% in the medium term. They consider that the forecasts published to date -such as those released on Friday by the club of the most developed countries- show the resistance of the Spanish economy and that the economic policy measures adopted to reduce inflation are effective and are making it possible to protect the sectors most affected by the continued rise in prices, families, and also reinforce the competitiveness of the national economy.
