Inflation eases in December to 5.8%, the lowest of the year

Taking out your wallet has become a high-risk activity in 2022. From house bills to weekly purchases, everything has become considerably more expensive in a year in which inflation reached its highest for almost four decades. That was in July and since then it has been progressively easing. At the end of the year it stands at 5.8%, according to the advance data for December published this Friday by the National Institute of Statistics (INE). This is the fifth consecutive month of decline, with one point less than the data for November (6.8%). Inflation in December is the lowest of the year, lowering the 6.1% progression with which the Consumer Price Index (CPI) began the year. And it is the first time since February 2021 that Spain registers inflation lower than that of a year earlier: the indicator stood at 6.5% last December, when the war in Ukraine had not yet started but the Energy was already experiencing major price pressures as a result of the post-COVID economic recovery.

If energy prices were once the triggers for the inflationary episode that Spain and the majority of advanced economies are experiencing, they are also being protagonists in the de-escalation. The INE highlights, for yet another month, that electricity and gasoline are the components that have contributed the most this month to attenuating the progression of the CPI. It is the confirmation of a phenomenon that was partly expected: the light at the end of December marked lows that had not been seen in a year and a half thanks to very favorable weather conditions. Clothing, footwear and tobacco, on the other hand, contributed to the rise.

And what is pressing is core inflation, which ends 2022 at 6.9%. This data is important because it is considered an indicator of the evolution of prices in the medium term, since it eliminates fresh food and energy products as they are considered very volatile. In fact, while the general rate has experienced a notable decline since August, the core rate marks a new peak, above the 6.4% it marked in August. And it is also 1.1 points above the general rate: since October 2020 such a distance has not been seen.

The other negative note in the improvement that Spain has experienced in the second half of 2022 is food. Advance data from the INE indicates that processed foods are one of the components that have pushed inflation up the most in December. The rate for the complete group of food and non-alcoholic beverages is unknown at the moment, which rose to 15.3% last month, just one tenth less than the 15.4% in October. These are exorbitant increases that directly hit the purchasing power of households by making the shopping basket more expensive. To try to reverse this situation, in the last anti-crisis package approved by the Government this week, measures have been adopted such as the temporary non-application of VAT on basic foods. But the possible effect of this measure will not yet be reflected in the December price statistics.

A year marked by inflation

With the data known this Friday, which the statistical institute must confirm in mid-January, a year marked by rising prices ends. “Inflation started the year before,” recalls María Jesús Fernández, a senior economist at Funcas, “but it is true that as a result of the war in Ukraine it has worsened due to the effects on the gas market and on certain markets closely linked to the farming”. The peak was reached in the seventh month of the year, when the CPI increased by 10.8% year-on-year, and since then Spain has experienced a gradual relaxation of inflation until in November it was positioned as the economy of the European Union with the lowest indicator .

Behind the increase in the cost of living are a multitude of effects that have hit the economy, such as the radical shift in the monetary policy of the European Central Bank (whose mission is to ensure that inflation is kept at 2%) and the consequent increase in the cost of variable mortgages. But Fernández points out that, however, economic growth does not seem to have suffered (GDP is expected to grow in Spain this year above 5% and what all the analyzes predicted half a year ago) because high prices “still have not They have limited industrial activity and neither has consumption”. In both sections, particularly in that of consumption, which has had the invaluable support of the recovery of tourism this 2022, it is possible for the expert that “next year we will notice both effects more.”

Because what seems certain is that, although declining, inflation will remain high next year, as indicated by the underlying indicator. The uncertainties about the energy markets, although at a sweet time for Europe thanks to a more favorable winter than expected, have not completely disappeared. “The inflation rate will drop, but we cannot expect prices to drop or to return to the levels prior to this escalation,” recalls Fernández. And in any case, the increase in the cost of living that Western economies have experienced in recent times will leave a lasting effect that will mark many families. “The loss of purchasing power will continue,” concludes the expert.