Inflation Rises In Spain For The Second Consecutive Month, Driven By Fuel And Electricity Prices

Inflation rose in August for the second consecutive month in Spain according to the latest data.

It did so by three-tenths of a percentage point year-on-year to 2.6 per cent. This was due, above all, to the increase in fuel prices – they had fallen in the same month one year ago – in the middle of the summer season, coupled with the effects of the drought and the high temperatures.

Electricity prices also rose more sharply this August than they did last year. In monthly terms, the CPI rate increased five-tenths in relation to July.

Inflation fell to 1.9 per cent last June

Last June, inflation in the country hit a low of 1.9 per cent, however, the subsequent rise in fuel prices coinciding with summer travel has been decisive in the last two months.

The final data will also serve to confirm the extent to which tensions have persisted over food and non-alcoholic beverages, whose price was again stressed last month when it rose by 10.8 per cent.

Data released this Wednesday, August 30, by the National Institute of Statistics (INE) confirmed that underlying inflation – which excludes fresh food and energy from its calculation and tends to reflect more structural price tensions – would have moderated by one-tenth to 6.1 per cent.

The ECB has not ruled out raising interest rates

It is this indicator that worried the European Central Bank (ECB) most, which, as its president, Christine Lagarde, made clear, remains unwavering in its fight against inflation.

The ECB has not ruled out continuing to raise interest rates to confront inflation, despite it having the knock-on effect of cooling of economy.

As confirmed by Germany’s stagnation in the second quarter of the year or by the poor PMI (purchasing managers’ indexes) data for the month of August, this is, in fact, what is already happening. They point to a contraction in the GDP of the Eurozone of 0.2 per cent in the third quarter .

A slowdown in the services sector – which had been leading the recovery – is also adding to the slowdown in the industry. This has allowed Spain and other Southern European countries to lead the recovery from the energy and inflation crisis aggravated by the war in Ukraine.

Spain has one of the lowest inflation rates in the Eurozone

Sources from the Ministry of Economic Affairs emphasised that Spain is consolidating itself as one of the countries in the Eurozone with the lowest inflation, after lowering it by nearly eight points in the last year.

This favours the competitiveness of Spanish companies, the gain in market share, and the increase in the purchasing power of salaries.

They also maintain that the economic policy measures give Spain one of the highest levels of economic growth with the lowest levels of inflation in the entire European Union.

The National Institute of Statistics will publish the final CPI data on September 12. This Thursday, Eurostat – the European statistics office – released its own advance of August inflation in the Eurozone, placing it at 5.3 per cent.

Euro area #inflation at 5.3% in August 2023, stable compared to July. Components: food, alcohol & tobacco +9.8%, services +5.5%, other goods +4.8%, energy -3.3% – flash estimate https://t.co/vM7t1vOWg8 pic.twitter.com/21rXJa1Ili

— EU_Eurostat (@EU_Eurostat) August 31, 2023

Its data will serve as an argument for the ECB to decide whether or not to finally take a pause in the rate increase that it has been applying tirelessly, the most aggressive since its creation.

Wednesday’s figures indicate that the downward adjustment of inflation will be very complicated, and, if the data in the Eurozone are similar, interest rates will continue to rise at the September meeting of the ECB.

In the opinion of Javier Molina, a senior market analyst for eToro: ‘We are in the dilemma between growth, inflation control, and rate increases’, as reported by lainformacion.com.