Spain Bucks The Trend As Inflation Slumps Due To Energy Price Fall

Spain witnessed a sharp decline in inflation in November, thanks to a fall in prices of fuel and electricity and also to government measures to ease the energy cost burden on households and businesses.

Consumer price inflation slowed unexpectedly in November, and at a sharp rate, preliminary data from the statistical office INE showed Tuesday.

The consumer price index in Spain rose 6.8 percent year-on-year following a 7.3 percent increase in October. Economists had expected the inflation rate to climb slightly to 7.4 percent.

Headline inflation slowed for a fourth month in a row after hitting a peak of 10.8 percent in July.

The harmonized index of consumer prices, or HICP, rose 6.6 percent annually in November following a 7.3 percent increase in the previous month. Economists had expected a higher inflation rate of 7.5 percent.

“This development is mainly due to the decrease in fuel prices, which increased in November 2021, and in electricity prices, with a larger decrease than last year,” the statistical office in Madrid said.

“The increase in clothing and footwear prices due to the start of the new season also played a role, although to a lesser extent, which is more moderate than in 2021.”

Spain has largely escaped the energy crisis in Europe that is massively hurting other economies in the region. Unlike Germany, the country has less reliance on Russian gas imports, and has significant regasification capacity and potential to tap into renewable energy.

Measures adopted by the Spanish government such as a reduction in the VAT on energy prices, cash support and price caps, are also helping to keep fuel costs in check.

Core inflation, which excludes prices of fresh food and energy, slowed to rose to 6.3 percent from 6.2 percent, INE data showed.

Compared to the previous month, consumer prices dropped 0.1 percent in October after a 0.3 percent increase in September.

On a month-on-month basis, the EU measure of inflation HICP decreased 0.5 percent.

Spain is among the few countries in Europe, and the only one in the Euro big four, that are witnessing a sharp fall in inflation. The country’s inflation rate is now well below the Eurozone figure of 10.6 percent.

Economists expect the falling trend in Spanish inflation to continue in the coming months.

ING economist Wouter Thierie said it will probably take until 2024 before inflation hovers around 2 percent again, which is the ECB’s target.

“The development next year will depend on several factors, such as the price of energy and other inputs on international markets, the fall in demand, the euro-dollar exchange rate, and the speed at which falling prices higher up the production chain lead to lower prices for consumers,” the economist added.

Recent data showed that factory-gate inflation hit a 13-month low in October, but remained strong at above 26 percent.

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