MADRID – The Spanish think tank Funcas warns inflation in Spain could exceed 4% this year. In the worst-case scenario, due to the ever-increasing electricity prices, the rise in the general price level could reach its highest level in 13 years.
Electricity, petrol, groceries… almost all components that make up the consumer price index (IPC) have risen considerably in recent times. The Spanish news site El Economista wrote on Tuesday that the IPC rose 0.5% in August, bringing the year-on-year increase in the general price level to 3.3%.
The worst is yet to come, according to Spanish think tank
While this is already a significant increase, experts from Funcas expect the worst is yet to come. They expect inflation to rise above 4% in the coming months, reaching its highest level in 13 years.
Most realistic scenario for inflation in Spain
Due to the bizarre situation surrounding the ever-increasing electricity prices, Funcas comes with new forecasts for the coming years. Electricity is the most determining component of the index figure. Funcas assumes that the electricity price will fall by about 15% in the next two months due to the measures that the government will take (reducing VAT and other taxes that should reduce the electricity bill).
Spanish institution adjusts previous forecasts
According to this scenario, inflation will rise above the aforementioned 4 percent in the coming months but will fall below that 4% again towards the end of the year to 3.9%. This new forecast is still 0.5 percentage points higher than Funcas’ latest forecast.
On an annual basis, Funcas, therefore, adjusts the average inflation to 2.7% instead of the previously predicted 2.5%. In 2022, Funcas expects an annual inflation rate of 2.2% that will fall to 1.4% towards the end of the year.
Warning of more dangerous inflation scenario
However, Funcas warns against a more dangerous scenario. Suppose that electricity prices do not fall after the intervention of the Spanish government, inflation at the end of 2021 would amount to no less than 4.5% with an annual average of 2.8%. This level was once as high in Spain, it was 4.6% just before the credit crisis in 2008.
