Inflation is taking root in double digits, a threshold that it exceeds for the third consecutive month, but it takes a breather. The National Institute of Statistics (INE) has reported this Tuesday, in its advance data, that prices rose by 10.4% in August, four tenths below the July statistics. The rates thus accumulate 17 months above the 2% objective that the European Central Bank has set for the countries of the single currency.
According to the INE, the decrease is mainly due to “the drop in fuel prices, which rose in August 2021”. On the contrary, he cites the increase in prices for electricity, food, restaurants and tourist packages, the latter two especially in demand in the summer season. Core inflation – closely followed by experts because it does not include energy and fresh food, the most volatile elements, which gives clues about its persistence – increased by three tenths, to 6.4%.
“The slowdown in inflation coincides with the implementation of the Government’s packages of measures, which demonstrates their effectiveness,” say Executive sources. The economic vice president, Nadia Calviño, hopes that the falls will become a trend. “Inflation has begun to moderate, in principle it will continue on that downward path in the coming months,” she said in an interview on TVE.
Miguel Cardoso, chief economist at BBVA Research, agrees. “We hope that in September and October inflation will continue to fall, it seems that we have found a peak,” he maintains, although he expects prices to continue rising by around 7-8%. until the end of the year. For Cardoso, victory cannot be claimed. “The worrying thing today is the rise in the underlying. The fact that a turning point is not seen probably indicates that we are seeing a fairly strong contribution from services, especially those that have seasonality in summer, as well as transfers in sectors that had not transferred the increase in costs to prices ” .
For a long time, the rise in prices was the result of increases in prices on multiple sides: oil squeezed, which ended up being transferred to fuels, and in parallel, under the uncertainty of the war in Ukraine, agricultural raw materials such as wheat, or essential for construction and industry, in the case of copper, aluminium, steel and iron. That is history. The prices of all of them have experienced significant declines in recent months, which drivers have been able to notice, for example, when they go to the pump, where gasoline has been getting cheaper for nine consecutive weeks. Once-tense supply chains and ocean freight prices, still historically high, have also eased.
There remains, however, a huge stone in the shoe called electrical energy. The recent cuts in the supply of Russian gas have triggered the price in international markets of this key source of electricity generation, thus pushing electricity rates to new records throughout Europe. The lower hydroelectric production due to the drought and the drop in wind power in summer, its weakest season, have also contributed to this.
The cap on gas, in force on the Peninsula since mid-June, has softened the blow, but Spain has not been spared: last week was the most expensive energy in history, with 376.94 euros per megawatt hour on average , and there are no signs that the trend is changing. This Tuesday, the light has reached the third highest price ever seen. Calviño acknowledges the problem, but resorts to comparisons. “It is clear that the rise in energy prices is being exponential in international markets, gas is skyrocketing, but thanks to the cap on gas and the Iberian mechanism, the price in Spain is a third below that of the countries of our environment”.
Its use is irreplaceable for households in activities as daily as putting on a washing machine, cooling the house with fans or air conditioning, or keeping food chilled in the fridge. And essential for the operation of the industry, especially in sectors such as metallurgical, chemical and iron and steel, for which it represents up to 50% of their production costs. Its increase in price is also filtered to other articles and services in which it intervenes in some way, from meat businesses, to fishmongers, laundries or the hotel industry in general. And it is aggravated by a euro-dollar exchange rate that for the first time in 20 years has placed the greenback above it, which increases the bill because gas and oil are paid for in dollars.
Andrei Boar, professor at the UPF-Barcelona School of Management, believes that the peak of inflation is behind us. “I expect reductions in inflation in the coming months.” Although he warns that even though Spain has electricity tariffs lower than those of other European countries in the wholesale market, it will not be immune to sharp increases such as those taking place in Germany —accentuated by the difficulty in transporting coal due to the drought in the river Rhine—and France, with technical problems in a good part of its nuclear park, which keeps part of the reactors stopped.
In both countries, the 2023 electricity futures have exceeded the barrier of 1,000 euros per megawatt hour for the first time in recent days —although Paris is not transferring most of these increases to the consumer, and it is assumed by the public coffers— . “We buy products from countries that do not have the Iberian exception, and the economic slowdown in the rest of the euro zone will also affect us. A tough autumn awaits us”, predicts Boar.
The electrical rebound is also changing the balances in the Ibex 35, the main index of the Spanish Stock Exchange, where Iberdrola became the largest listed company above Inditex for a few hours on Monday, which later surpassed it again. And if it already forced the European Central Bank to make a move in July with a 0.5% rise in interest rates, the highest in 22 years, now it is Brussels that has set its machinery in motion with the announcement this Monday of the President of the European Commission, Ursula von der Leyen, of an “emergency intervention” of the electricity market to curb prices. Spain will propose as a solution that the entire EU apply the Iberian exception to set electricity prices.
A report by analysts at Arcano Economic Research entitled Are we headed for a global recession? concludes that the summer energy situation in Europe “has not only caused gas and electricity prices to reach new highs, but the futures market is drawing a very complicated 2023”. Although he sees a ray of light in the dimming of the economic perspectives. “Recessions kill inflation,” they argue, because they encourage saving and reduce consumption, thus removing some of the excess demand that drives prices.
Its chief economist, Ignacio de la Torre, predicts that inflation will decline thanks to the fall in agricultural raw materials, which will be transferred to food, and the improvement of supply lines, but points out that it will subside more slowly than its rise, and does not contemplate a return to normality until 2024.