MADRID – In March inflation fell to 3.3%. That is the lowest level in a year and a half. The comparison with the same month last year helped moderate prices significantly.
Then energy prices shot up because of the start of the war. The Spanish National Institute of Statistics INE published provisional figures on Thursday. The result is not surprising, but the intensity of the decline is greater than expected.
This is mainly due to the base effect. Because this is an annual measurement in which the prices are compared with those of the same month a year ago, the outcome is favourable in this case. March 2022 was the first full month of war in Ukraine, as electricity, gas and oil rose exponentially due to uncertainty over Russian supplies.
Energy price down
In addition, the energy price has fallen over the past 30 days. This decline was partly caused by reductions in oil and gas prices due to fears of a recession as a result of the banking crisis and the ensuing credit restrictions. In addition, electricity is cheaper because the weather with strong winds is favourable for wind energy generation. Consumption is also lower due to unusually warm temperatures. However, core inflation remains high at 7.5%, one-tenth less.
The drop in inflation compared to February, when it was 6% year on year, is not enough to reach the European Central Bank’s target of 2%. However, it has been more than a year since August 2021 when inflation was this low.
Falling inflation does not indicate falling prices
However, the drop in inflation does not mean that prices are falling or are cheaper than a year ago. It just means they’re rising less quickly. According to the INE, prices have increased by four-tenths compared to the previous month. However, this year-on-year decline is the first step towards tackling the problem.
A decline does not mean an end to inflationary pressures
The 2.7-point drop is one of the largest in inflation history. It has not fallen this much since May 1977. However, experts warn that it does not also mean the end of inflationary pressures. Although the figures are encouraging, it is still too early to speak of a definitive change in the trend.
“It is something of an illusion because core inflation is still high and in the coming months the base effect will not be as strong as in March. Although it will still help to slow inflation,” explains Leopoldo Torralba, an economist at Arcano, out in El País.
Difference Between Core Inflation and General Inflation
The 4.2-point gap between core inflation – which excludes energy and fresh food – and headline inflation is the largest since August 1986, when the INE began calculating core inflation. That indicator is therefore worrying because it points to the persistence of inflation.
Food prices rose more than 16% in February. That was despite the VAT reductions that the government has approved for certain basic products. Moreover, the developments will be announced in March in two weeks’ time.