May has been a month of good news in the battle against inflation: gasoline and diesel are already cheaper than before the war in Ukraine, the price of gas has fallen to the lows of the end of 2021, and this contributes to reducing the electricity bill, and food, although still growing at high rates, seem to have entered a slowdown phase. The numerical translation of these events has been known this Tuesday: inflation slowed down in Spain to 3.2% compared to the same month last year, nine tenths less, according to advanced data from the National Institute of Statistics (INE), which attributes the setback, above all to fuel, and to a lesser extent to food. In a monthly rate, prices fell one tenth, the first time they have fallen in a month of May since 2017.
The trend is that price increases will no longer return to the dizzying numbers of 2022, but experts warn that a return to normality will still take time. Two issues continue to worry us: core inflation that is still high, at 6.1%, a sign of the persistence of the phenomenon, despite a notable drop of five tenths, and the cost of the shopping basket, although in groceries, in the absence of After assessing the final consequences of the drought, there are encouraging signs that a slowdown is underway.
The economic vice president, Nadia Calviño, has indicated that the May data “confirms the effectiveness of the Government’s measures” against the rise in inflation, and “positions our country as one of those with the lowest inflation in the Union European”.
The return to the levels of July 2021, almost two years ago, makes the ground ripe for barriers unthinkable not so long ago to be broken this summer, closer to the 2% threshold recommended by the European Central Bank. The base effect plays in its favour, because the sudden increases in prices in the spring and summer of last year make it difficult for the phenomenon to replicate with such intensity, when comparing annual inflation with what happened in 2022.
So believes Ángel Talavera, chief economist for Europe at Oxford Economics. “We are at the beginning of a cycle where we will probably see inflation fall below 3% in the coming months, given that energy prices are still well below what they were a year ago and food inflation is finally starting to come down. . The underlying should also fall gradually, but we will have to pay attention to services, especially tourism, which will probably be the main inflationary component”.
Tourism is starring in a brilliant start to the year. The 13.7 million visitors that arrived in the first three months of 2023 still do not exceed those received on those dates before the pandemic, but their spending is being much higher, partly due to the rise in prices. And the expectations for the summer, based on hotel reservation data, anticipate a record season that, although it will mean a new oxygen balloon for a sector hard hit by the pandemic, will also increase the pressure on prices as demand grows. Everything indicates, however, that the base effect will weigh more, since inflation in June, July and August of last year ran amok to double digits.
For Talavera, it cannot be ruled out that these favorable prospects have weighed on the decision of the Prime Minister, Pedro Sánchez, to bring forward the general elections. “The expectation of good economic data in the short term may have been part of the decision,” he speculates. In the longer term, Arcano Economic Research economist Leopoldo Torralba predicts good news for inflation, although at the cost of other indicators. “The underlying should slow down well due to the greater economic weakness and lower energy prices, so companies will pass on fewer costs.”
To the internal factor of the millions of tourists who will spend in Spain is added another purely domestic one that will also affect prices: the Government’s decision on whether or not to extend the VAT reductions to a group of basic foods, scheduled until June 30 . Both coexist with external circumstances that depend on international markets. To the already mentioned collapse in gas, we must add the fall in the average price of a barrel of Brent oil, which helps to alleviate the cost of drivers when filling up the tank. And in the foreign exchange market, the euro-dollar exchange rate, relevant because energy prices are denominated in dollars, has stabilized at levels similar to those of a year ago, leaving behind the sharp fall registered by the euro last year. , when it came to be exchanged well below a dollar.
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