Electricity and fuel prices are falling and most foods in the shopping basket are still skyrocketing. The pockets of Spaniards know this reality better than anyone, to which concrete data has now been provided by the latest Consumer Price Index (CPI) published by the INE.
Inflation for the month of December will close at 5.8%. This is one point below what was marked in November (6.8%), and the lowest data in all of 2022. They are five points less than the maximum registered in the month of July, no less than 10.8%.
“The reading has to be very positive. Inflation has dropped five points in five months, mainly due to the fall in energy prices," explained the First Vice President and Minister of Economy, Nadia Calviño, as soon as the data was released. The measures taken by the Government to contain energy prices have borne fruit, to which has also been added a cooling in the international energy markets. "The data is good, of course, because it serves to index many economic references, rents, other income, contracts, salaries, etc.", says Jose Ignacio Conde-Ruiz, Fedea economist.
But fixing the pocket problems of the Spanish could not be so easy. The sweet data for general inflation comes with the bitter scenario presented by core inflation (which does not take into account energy prices or unprocessed food), which ends the year at 6.9%, after rising six tenths only in the last month. The culprits? Especially processed foods, which accumulate the greatest rise in decades, with a year-on-year increase in November (latest data available) of 15.3%.
A "logical" trend, according to the Minister of Economy, and that "will begin to change from January". Her opinion is only partly shared by analysts, for whom the fact that it is "logical" is not a reason for peace of mind, but quite the contrary, it generates a lot of alarm. “It is very difficult for food to drop in price now. Not even with the VAT reduction that the Government has approved. A liter of milk that now costs one euro should go to 96 cents. How much do you think it will stay at that price? In such small quantities it tends to round up. What's more, many producers have been losing money for too long to lower prices now”, warns the economist and IEB professor Javier Niederleytner.
The CPI is calculated based on a basket of products in which energy and unprocessed food have a great influence. When they go up, the overall index goes up fast. When they go down, headline inflation goes down too. “There are few components but they are very volatile because they are very sensitive to the international situation. Now that the impact of the war has softened, the policy against the covid in China and the problems in the logistics chains are being fixed, general inflation is falling fast. With the rest of the elements of the basket with which the CPI is calculated (those that include core inflation) the translation of prices is slower”, explains the economist José Antonio Herce, founding partner of LoRIS (Longevity
The rest of the goods, hundreds, are used to calculate underlying inflation, which is more stable and more reflective of the country's reality. There is the problem. Core inflation has outperformed the headline. This is something that has happened on different occasions, the last one in 2020, but the current reasons warn of bigger problems. “The rise in energy quickly contaminates the hundreds of assets with which the underlying is calculated, but now it has taken on a life of its own. The logic of the rises is unrelated to energy and that is why it will take months to go down, ”says Herce.
“They will tend to converge. The withdrawal of the aid of 20 cents for fuel will raise the general index in January by about six points and the VAT reduction will barely be noticeable. We can expect a convergence of both around 4.5% in the middle of the year. But for this, an income pact is urgently needed, not only to contain wages, the Government must also create an observatory of business margins, ”says Conde-Ruiz for his part.
Because that "life of its own" that Herce speaks of is due to the fact that the current rise has nothing to do, as the Economics manuals state, with second-round effects (increases in wages that drive up costs and start over again). . “On this occasion, the unions are playing a commendable containment role. The wage increases they are demanding are far from the CPI level. The same can be said of the self-employed and SMEs, which are enduring a strong containment of margins, if not losses, so as not to transfer all their costs to the end customer”, explains Herce.
Where is the danger then? "Pensions and large oligopolies, which increase their margins due to the lack of competition," says the economist. In the same line, Conde Ruiz points out, who calls for an observatory of business margins. “Raising pensions or the salaries of civil servants by 8% is not reasonable in this economic environment. The rent agreement should also include them to stop the escalation ”, he adds. A difficult proposal to expect in an election year like 2023.