Inflation has fallen to 3.3% in March, but it is a decline that has much more of a statistical effect than a real moderation of the rise in prices this month. The year-on-year CPI is drastically reduced, from 6% in February to 3.3% in March, but this does not mean that prices have fallen.
The key is that interannual inflation is calculated by comparing the CPI of the month in question with that of the same month of the previous year and in this case, in March 2022 the war in Ukraine had a full impact and with it, the escalation of the price of energy. In March of last year, inflation was close to 10%, with which, when compared with the current rate, the so-called base effect kicks in, and the year-on-year CPI is reduced to 3.3%. It is the lowest rate since August 2021.
In the coming months, this effect will be especially significant. An analysis by CaixaBank Research, carried out by Oriol Carreras and Javier Ibáñez, which advanced The vanguardindicates that “the base effect will exert significant downward pressure on inflation throughout the first half of 2023” and shows the variation in the impact of this base effect, which will be very pronounced in March and June, and less so in April and May.
Economists warn that this fall does not mean that the pressure of inflation has ended. “We are far from seeing the end of inflationary pressures, core inflation remains high, and although it will probably start to decline from now on, it will do so gradually. On the other hand, towards the end of the year we will have the opposite base effect on prices of energy due to the big fall in the final part of 2022, which will push inflation up,” says Angel Talavera, chief economist for Europe at Oxfords Economics.
More volatility in the coming months
The result is that the validity of the general CPI will be relative in the coming months. Not only in March, but throughout the year, especially in the first semester. This also explains the repeated statements by the First Vice President and Minister of the Economy, Nadia Calviño, that in this first part of the year “high volatility” of inflation is expected given that the year-on-year rate will be compared to the most turbulent moments at the beginning. from the war.
The good performance of electricity and fuel prices, which increased in March 2022 and decreased this month, have played in favor of reducing inflation.
For its part, core inflation fell by one tenth compared to the previous month, standing at 7.5%. It is the first drop, albeit minimal, in this type of inflation, which does not include energy or fresh food, since last September. In this way, four consecutive months are chained with underlying inflation above 7%. It is a less volatile indicator than headline inflation and its high rate is an indication that inflationary pressures are still present.
The Ministry of Economy highlights the good performance of electricity and fuels in this month of March, which have continued to fall. “The sustained drop in the price of electricity thanks to the Iberian solution and the rest of the measures adopted has been key for Spanish inflation to be among the lowest in Europe,” they say.