The National Statistics Institute (INE) has confirmed thatinflation fell again in October for the third consecutive month, to 7.3%, with two opposing trends: food, pulling up the general rate of prices; andelectricity and gas, favoring the path of moderation. These are some of the keys to the consumer price index (CPI) data published this Tuesday by the INE.
Why is inflation falling?
After reaching a peak in July with a rate of 10.8%, the inflation rate in Spain has now been corrected for three consecutive months at 7.3%, below the level of February (7.6%), when the war broke out in Ukraine. It is not that prices are falling, but as they rose in October compared to September much less than they did in the same month last year (0.3% compared to 1.8%) , the annual rate is reduced. The measures adopted by the Government to moderate energy prices have been key to bringing inflation back on track, which otherwise, according to Bank of Spain calculations, would have been at least 3.5 points higher (it would have exceeded 14%). The drop in energy prices on international markets also played a role. In addition, the so-called 'step effect' must be taken into account: current electricity and light prices are compared with some months of last year in which their increase in price already started to become more acute.
What is rising the most?
Among the most inflationary goods and services, food has taken over from energy. In October, food rose by 13.3% with respect to September and recorded an annual increase of 15.4%, which is a record since the beginning of this historical series in January 1994. The group of energy products, on the other hand, recorded a monthly decrease of 6.2%, which leaves the annual increase in this heading at 8%. Among foodstuffs, annual increases were noted for foods such as sugar (42.8%), vegetables (25.7%), eggs (25.5%), milk (25%), oil (23.9%), cereals and derivatives (22.1%), potatoes (19.9%), chicken (18.3%), bread (14.9%) and beef (14.9%).
Fuel prices also rose in October. The rise in fuel prices also pushed up fuel prices, which increased in October by 2.9% with respect to the previous month. In particular, the INE recorded a monthly rise in gasoline of 2%, which leaves the annual variation at 1.1%. In the case of diesel, the monthly increase was 3.5%, which brings the annual increase in the price of this fuel to 24.3%.
What has fallen the most?
In monthly rate, compared to September, electricity prices fell by 22.5% in October. For the first time after almost 20 months of inflation, the October electricity bill in the regulated market was cheaper than that of the same month of the previous year: 15.4% lower. The truth is that in October 2021 the price of electricity had already risen 62.8%, so the current reduction barely corrects part of the accumulated increase in the price of electricity.
The price of gas also fell last month, by 6.4%, as well as accommodation services (-3.9%), package tours (-4.3%) or airline tickets (-5.2%). This does not always mean that prices are cheaper than a year ago, but they do moderate their rise. Thus the price of gas is 10.6% more expensive than a year ago.
What will happen from now on?
The First Vice-President, Nadia Calviño, has said in public on recent occasions that the Government's expectation is that the inflation rate will remain at current levels until the end of the year, before resuming the downward path in 2023. This will be helped by the 'stepping stone effect', as after the sharp rises in 2022, these are likely to be lower next year. At the moment, the average inflation rate in 2022 stands at 8.8% and the Bank of Spain forecasts that the average will fall to 5.6% next year. The drop in the inflation figure to 7.3% makes Spain the country with the second lowest rate of price increases in the European Union, only behind France and well below the average for the euro zone, which, according to the data released by Eurostat, stood at 10.7% in October.
How does it affect pensions, salaries and benefits?
The 12-month average inflation recorded in November will mark the rise in pensions in 2023. The government estimates that the figure will be 8.5%, but it could fluctuate up or down by a few tenths of a percentage point. The inflation figure, however, is hardly being passed on to collective bargaining. With data up to October, the average agreed wage increase is barely 2.6%, with the consequent loss of purchasing power for workers. For this reason, the unions are promoting a campaign of mobilizations. On the other hand, the employers' association CEOE insists on maintaining wage moderation to avoid second-round effects: "In this context, it is particularly important to avoid a scenario in which price and wage increases feed back on each other, so as not to produce second-round effects that lead to an inflationary spiral," says the CEOE. For its part, the so-called core inflation (which does not take into account the more volatile prices of energy and unprocessed food) remained at a high level of 6.2% in October, and for the trade union centers this indicator is close to the rise in company margins (profits). At the same time, the high level of inflation in the euro zone (10.7% in October) is putting upward pressure on the European Central Bank's (ECB) monetary policy of raising interest rates.