The good news is that inflation has entered the control zone and a moderation scenario lies ahead.
The not so good thing is that the process will be slow, and that during this year we will continue at relatively high levels. A report from CaixaBank Research estimates that the average CPI in 2024 will remain around 3%, half a point below the previous year, and that to reach the 2% always desired by the European Central Bank, we will have to wait two years more, until 2026.
“This year it is food and energy that will limit price moderation,” says Zoel Martín, author of the report InflaciON, inflationOFF: outlook for 2024. Or to be more precise, the limit will come from the price of some foods that, although slowing down their increases, will continue at high levels; and a progressive withdrawal of tax aid that will cause energy prices to rise. One of the clues that supports this forecast is that underlying inflation, which does not take into account energy or fresh food, would finally be below the general inflation, which points to the real culprits of why prices do not fall further. The forecast is that this rate, less volatile and more reliable in fund trends, will remain at an average of 2.7%
With regard to food, if the average inflation last year was a very high 11.1%, this year it would be 3.8%. The rise is slowing down, but the rise continues, so a visit to the supermarket will continue to be painful over the next few months.
Although the unbridled escalation of food prices already began in 2022, last year saw its consolidation, reaching its peak (in February and March above 16% year-on-year) and remaining above 10% most months. . Now it's time to pause, with these prices stabilizing in February, and which are expected to continue to moderate.
A moderation that is largely explained by the so-called base effect. Given that prices last year were so high, when establishing the year-on-year comparison, a significant slowdown is expected. In addition, a reduction in agricultural costs, which have had a negative year-on-year rate of change for several months, will also play a role, which should alleviate pressure on food prices.
In energy prices, what will be noticed is the impact of the progressive return of taxation. It is something that was already appreciated in January, with a rise of three tenths due to the withdrawal of the first aid, such as a VAT on electricity that rose from 5 to 10%, the tax on the Value of Production that was suspended and went to 3.5%, and the special tax on electricity, which went from 0.5 to 2.5%. There are other increases in sight, one of which is this special tax on electricity, which will rise again in June.
Without forgetting what has emerged as the surprise of February, a sharp drop in the wholesale price of electricity. Good news without a doubt, but with a derivative, the increase starting this March in the VAT on electricity from 10 to 21%, as the wholesale price remains below 45 euros/MWh.
The truth is that energy prices will remain contained this year, both for fuel, with a barrel of Brent at an average of $79, and for electricity. However, in this case, as we have mentioned, it will be offset by the scheduled tax increases.
“As far as underlying inflation is concerned, we are optimistic,” adds economist Zoel Martín. The reasons are that they foresee that the transmission of the impact of energy and food to the hard core of inflation has already been exhausted, that the general industrial price indices have been in negative territory for months and, furthermore, that they rule out second-hand effects. round due to salaries, whose increase has stabilized at around 4% year-on-year.
