Inflation eases to 6.8% in November, but food prices remain skyrocketing

Spanish households are entering the Christmas season, the season of greatest consumption of the year, with historically high inflation levels, but cushioned by four consecutive months of slowdown in which four points have been left behind. The National Institute of Statistics reported this Wednesday that prices ended the month with an advance of 6.8% compared to the previous year, the same data advanced two weeks ago. This represents a moderation of half a point compared to the 7.3% registered in October.

It was already known that the wind generation records were decisive in lowering the electricity bill, which closed November with an average price of 124 euros per megawatt hour in the wholesale market, the lowest since August 2021, 15 months ago. The CPI also includes this decrease: the price of electricity fell by 22.4% compared to November 2021, while in August, when inflation was close to its ceiling, it rose by 60.6% in the interannual rate. The lowering of taxes undertaken by the Government helped to reduce it this month by an additional 3.5 points.

The fall in oil on the international markets has also contributed to the moderation of inflation, but now more details are known about a fundamental item: food. These rebound by 15.3%, a rate almost identical to the 15.4% of last month, when it broke its all-time high. And they still do not show signs of having reversed their trend towards a slowdown. “There is no inflection in food, unlike what happens in energy,” says Raymond Torres, director of the Economic Situation of Funcas.

The items that experienced the highest increases compared to November 2021 were other oils (55.9%, excluding olive oil), liquid fuels (52.5%), sugar (50.2%), flour and other cereals (37 .6%) and butter (37.5%). But significant increases were also recorded in widely used foods such as whole milk (30.9%), eggs (27.1%) or pasta (21.5%).

Inflation compresses a whole universe of factors into one figure. And the majority are favoring the deflating of prices. Maritime transport rates, through which most of the planet’s goods circulate, have fallen sharply. And in currencies, the euro returned to exceed the value of the dollar in November, which helps reduce the cost of gas and crude oil imports, crucial to keep industrial machinery running and heat homes before the imminent arrival of winter , as well as for businesses and individuals who depend on vehicles to work the land, deliver orders, or simply go to the office.

Another circumstance that pushes inflation down is the base effect. As energy prices have been at unusually high levels for more than a year, a priori it is more difficult for them to sustain the rate of rise, so the statistics begin to reflect this fatigue after 20 months of inflation above the 2% target of the European Central Bank . This is how Ignacio de la Torre, chief economist at Arcano Research, expresses it. “The worst of the price increases are starting to fade as we compare high energy months to equivalent months of high energy a year ago, but core inflation data is still not improving.” In November, the core, which does not take into account energy and fresh food due to its volatility, rose one tenth, up to 6.3%.

The least bad data of the euro zone

The diagnosis of the problem stems from common roots throughout Europe: energy and its contagion to food prices, but there are wide differences within the community club, because not all countries have the same mixed —some have more renewables, others depend more on Russian supply—, the weather is different —the wind, the sun or the temperatures affect electricity generation and the greater or lesser consumption— and the impact of government subsidies approved for containing the escalation is not homogeneous either.

In comparison, Spain is faring well for now: it is the euro country with the lowest inflation —well below the average, 10%—, on a list in which the Baltic republics —Estonia, Latvia and Lithuania— They suffer the most accentuated crisis, with price increases of more than 20% year-on-year.

Although Spain has been experiencing low inflation for four months, the slower pace of the euro zone in making it remit affects Spain on a rebound, firstly because it buys more expensively from its community partners, and secondly because the high rates encourage the European Central Bank to raise interest rates more intensely, which complicates access to credit, hurts growth, and increases pressure on risk premiums in the most indebted countries.

However, there are positive signs also in the partners of the single currency. The first moderation in the last 17 months for the euro countries took place in November, a fact that for Ángel Talavera, chief economist for Europe at Oxford Economics, will condition the next ECB decisions for the better, still with caution. “The fact that inflation is finally starting to ease, I think, will allow the ECB to slow down the rate hike, going from increases of 75 basis points to 50 in December, and then to 25 at the next meeting in February. But given that core inflation persistence, there is a risk that the ECB will see some further hike as necessary, and we are unlikely to see rate cuts, at least in 2023.”