Spain no longer major economy within EU with lowest inflation

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inflation in Spain

MADRID – Spain was no longer one of the major European Union economies with the lowest inflation in October. For the first time in more than a year, prices in the Iberian country rose above the eurozone average, which fell below 3%, according to Eurostat data.

In contrast to the slowdown in prices in the eurozone, Spain’s Consumer Price Index (CPI) rose slightly, by two-tenths of a percentage point, to 3.5%. That remains one of the countries with the highest increases in food prices.

The European statistical office confirmed on Friday that the average rate of change of the CPI in the eurozone fell by almost one-and-a-half points to 2.9% year-on-year in October. Inflation thus crossed the 3% threshold for the first time since July 2021, when inflation was already on a particularly upward trend.

Prices within Eurozone

The price behaviour in the eurozone – and in the EU as a whole, where the CPI fell from 4.9% in September to 3.6% in October – contrasts with the stagnation of inflation in Spain. There, in the 10th month of the year, the CPI was above the eurozone average for the first time since August 2022.

The abrupt slowdown in eurozone prices – which did not fall but rose at a slower pace – is largely explained by the statistical effect. When the year-on-year change in the CPI is measured, the comparison with October 2022 is favourable.  Back then, inflation was 10.6%. That was the peak of growth. This was also the case in Germany and Italy, where CPIs reached annual rates of 11.6% and 12.6% in October 2022.

A year later, the German index has fallen to 3% and the Italian index to 1.8%, considerably lower than the rates of 4.3% and 5.6% recorded in September.

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Inflation in Spain

The moderation of inflation in Germany and Italy caused both countries to oust Spain, after 11 months. In contrast to the successive declines in CPI in the eurozone average over the past six months, inflation in Spain has been rising for four months now, after falling to 1.6% in June. The Iberian country also registered the peak of the upward curve earlier than the other members of the single currency as a whole, in July 2022, hence the difference in trends.

Of the four major EU economies, inflation in Spain remains below only the French figure, which fell to 4.5% in October. Of the 27 EU members, Belgium, the Netherlands and Denmark were the countries with the lowest inflation in October. The figures there were even negative (-1.7%, -1% and -0.4% respectively). In contrast, the strongest price increases were recorded in Hungary, the Czech Republic and Romania, with rates exceeding 8%.

Behind the slowdown in prices in the eurozone as a whole in October was mainly the moderation of energy prices. It is now 11.2% lower than a year ago, when inflation was 41.5%, but is still under pressure from the effects of the war in Ukraine. Excluding the effect of energy when calculating inflation, the year-on-year CPI stood at 4.9% in October, compared with 5.5% in the previous month. Even when excluding the effect of the price of food, alcohol and tobacco, underlying inflation came in at 4.2%, three tenths of a percentage point lower.

Food and non-alcoholic beverages

At the opposite end of the spectrum to energy, the products that continue to show the biggest price increases are still food and non-alcoholic beverages. The year-on-year variation in CPI averages 7.5% within the EU. According to Eurostat data, food inflation in Spain was 9.4%. Although this figure fell by almost one point from September’s 10.5%, the Spanish figure is still the second highest in the whole EU, after Greece’s 10.4%.

ECB inflation target

October’s drop in the overall index in the eurozone as a whole brings inflation closer to the European Central Bank’s (ECB) 2% target. After just over a year of tightening monetary policy, the institution chaired by Christine Lagarde agreed in late October to its first pause after 10 consecutive hikes that pushed eurozone interest rates to an unprecedented 4.5%.

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