Inflation turns around with force. After two months accelerating, prices slowed in March to 3.3%, according to advance data published this Thursday by the National Statistics Institute (INE). The turn is not a surprise, although its intensity is greater than expected. The so-called base effect is decisive in the figure: as it is year-on-year data, in which prices are compared with those of March 2022, the first full month of war in Ukraine, when electricity, gas and oil were shot out of control due to uncertainty about the Russian supply, the balance is favourable. Added to this is the fact that in the last 30 days energy has become cheaper, with decreases in oil and gas due to fear of a recession derived from the banking crisis and its consequent credit restriction; as well as new reductions in electricity, in an environment conducive to wind generation due to gusts of wind and lower consumption due to unusually warm temperatures. Core inflation, on the other hand, remains high, at 7.5%, one tenth less.
The decline in the CPI compared to February, when it was at 6% year-on-year, is not enough to reach the European Central Bank’s 2% target, but it had been a little over a year and a half, since August 2021, without getting that close . This does not imply that prices are going down – they are up four tenths in monthly terms, according to the INE – or that they are cheaper than a year ago, just that they are going up less, although that is the first step to tackle the problem.
The experts warn that the fall, of 2.7 points, one of the most important in the historical series —it had not fallen so much in a month since May 1977—, does not imply the end of inflationary pressures, and although the data It is hopeful, they see it premature to talk about a definitive change in trend. “It has something of a mirage, because the underlying CPI remains high, and in the coming months the base effect, although it will continue to help slow down inflation, it will not do so as much as in March,” explains Leopoldo Torralba, economist at Arcano. The difference of 4.2 points between subjacent inflation —which excludes energy and fresh food, the most volatile elements— and the general one is the largest since August 1986, when the INE began to calculate the first of them.
In similar terms, Ángel Talavera, chief economist for Europe at Oxford Economics, expresses himself. “This should not make us believe that inflationary tensions are over. The underlying and food prices will continue to be high, and in addition, the large drop in energy prices in the last months of last year will cause the opposite effect to that of March on inflation in the last months of 2023 ″, he affirms. The price of food rebounded in February by more than 16% despite the VAT reductions approved by the Government for certain basic products, becoming the main concern of the Executive, but it will be necessary to wait two weeks to know its evolution in March.
Government sources point out that the slowdown in inflation, now almost three times lower than last year at this time, is allowing Spanish companies to be more competitive abroad. “The sustained drop in the price of electricity, thanks to the Iberian solution and the rest of the measures adopted, has been the key to keeping Spanish inflation among the lowest in Europe,” they say.
Russia’s status as a crude oil and gas exporting power has shaken energy markets last year with unusual intensity. Brent oil, for example, closed March 2022 at an average of $117 a barrel. This course has changed the scenario: in the short term the fear of shortages has disappeared —gas reserves closed the winter at all-time highs— and Europe has found new suppliers to fill the void left by Moscow. The price of oil is also very dependent on the economic cycle. The reopening of China after its restrictive zero covid policy encouraged the idea that the demand for fuel would grow, and with it prices would rise, but in the end this has not been the case. Other forces are at play, and the prospect of weak or even negative growth has deflated Brent below $80 on average this month.
In two weeks, when the final data comes out, it will be known how the evolution of fuels, electricity, food and the rest of the components with which the consumer price index is prepared has been. According to calculations by the Complutense Institute for Economic Analysis, the falls in energy will be unanimous: gasoline would have become cheaper by 12.9%, diesel by 15.5% and electricity by 51.1%, which would have been decisive for the good behavior of March.
That statistical distortion will mark the remainder of the year. Although there are other factors to be aware of. The euro, very weak of late, has regained ground. This is important because energy purchases are paid for in dollars, with which a euro at low times makes the bill of the countries of the single currency more expensive, and one when it rises makes them cheaper. The boom in tourism, which faces Easter with the aim of equaling pre-pandemic levels, and faces the summer season with optimism, may make it difficult for prices to land.
Follow all the information of Economy and Business in Facebook and Twitteror in our weekly newsletter
Five Days agenda
The most important economic appointments of the day, with the keys and the context to understand their scope.
RECEIVE IT IN YOUR MAIL
