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The Inflation Situation: Spain

Inflation stood at 10.5% in August in Spain, one-tenth of a percentage point higher than expected by the INE, with core inflation at 6.4%. The CPI continues to rise above double digits in much of Europe, levels not seen since the 1980s. The Bank of Spain warns of the coming economic slowdown and extended high inflation. The National Statistics Institute (INE) revealed on Tuesday the inflation registered in Spain in August was 10.5% year-on-year, three-tenths below that recorded in July but still above double digits, levels not seen in the country since the 1980s. The final figure for the rise in the CPI for August is somewhat more negative than the INE had anticipated at the end of the month, when it pointed to inflation of 10.4%. This means that prices in Spain in August were on average 10.5% higher than those recorded in August 2021.

The underlying rate, which is used to measure the contagion of the rise in costs to the rest of the products in shopping carts and does not include the price of energy products or fresh food, rose by 6.4% year-on-year in August, the highest increase since 1993. The data in monthly terms, which show how much prices in the country rose in August compared with July – in a matter of just thirty days – show that the general CPI rose by 0.3%, two-tenths of a percentage point more than the INE had forecast at the end of the month. The underlying indicator rose by 0.4% in August compared with July.

Where it is hitting

Electricity and food were the types of goods that recorded the biggest price rises. The housing index – which includes the price of water supply, electricity, gas and other fuels – increased by 24.8% year-on-year in August, while food and non-alcoholic beverages rose by 13.8%. Transport, in third place, rose by 11.5%. Of the 200 products whose prices are tracked by INE officials on a shop-by-shop, month-by-month basis, liquid fuels showed the biggest rise in August, up 79.1%, followed by some edible oils, which rose by 71.2%, and electricity, which rose by 60.6%.

The rise in electricity and food bills has a major impact on the purchasing power of all households, as these are basic necessities that cannot be substituted and whose demand does not change excessively due to their price. In fact, the proportion of consumption of these goods is much higher in families in the lowest income deciles, which is why they are precisely those who suffer most from the impact of inflation. After electricity, the list of products that rose the most in August includes various foods such as flour (39% more expensive now than in August 2021), butter (+31.8%), pasta and couscous (+30.3%), sauces and condiments (+26.5%), skimmed (+26.3%) and whole milk (+26%), eggs (+22.4%), chicken (+17.6%) and yoghurts (+17.3%).

But will it continue?

Looking ahead to the coming months, the government is optimistic that inflation will gradually slow down and that it will have already reached its peak. The measures approved to date and the containment of the monthly rate support its theory. However, the Bank of Spain warned on Monday in its first assessment of the economy after the summer that Spain will experience a longer period of high inflation than expected, in addition to other challenges such as an economic slowdown and the recovery of employment and activity levels prior to the pandemic.

Despite the fact that the CPI is soaring, the Ministry of Economy insists that the inflation in Spain is imported from abroad, due to the prices of energy and other components that our producers buy abroad, which is why they are looking at another indicator, the GDP deflator, which measures the evolution of domestic prices and which rose by 3% in the second quarter.