The National Institute of Statistics (INE) confirmed this Tuesday the inflation data advanced at the end of August. The annual variation rate of the CPI rose in the eighth month of the year for the second consecutive month, driven mainly by the rise in fuel prices. Although food inflation gave a slight reprieve to the Spaniards' pockets, the shopping basket continues to rise by more than 10% and the price of basic products such as oil or sugar continues to skyrocket.

The upward trend in inflation that the provisional data from the INE already indicated has been corroborated this Tuesday. The CPI rose three tenths in August to an interannual rate of 2.6%, after having experienced similar growth in July. The evolution of prices thus moves away from the 2% objective set by the European Central Bank (ECB), suspended until the end of the year. In the last month alone, consumer prices have risen 0.5% compared to July levels, thus chaining three monthly increases.

However, the acting first vice president, Nadia Calviño, has highlighted that “during the month of August, inflation remained below 3% and food inflation moderated.” “Our economic policy works because it has allowed us to lower inflation eight points in the last year in an inflationary context throughout Europe,” defended the also Minister of Economic Affairs.. Despite the increases in the last two months, inflation remains far from the figures recorded a year ago, when it reached a rate of 10.5% in August 2022, the second highest in the historical series.

The INE has attributed the rise in prices to the increase in the cost of fuels and lubricants for personal vehicles and liquid fuels.. Faced with the cheaper electricity, gasoline is 6.7% more expensive than a year ago. In the last month alone it has become more expensive by 5.7%. In fact, when excluding the price of energy and unprocessed food from the calculation, core inflation moderated slightly in August, falling one tenth to 6.1%. The indicator thus returned to the downward path that it abandoned in July after four months of moderation, after peaking at 7.6% in February.. Since then its deceleration has been slow. It is still 3.5 points above the general figure.

Food inflation also moderated in August to 10.5%, registering a slight decrease of three tenths in the interannual rate. In this way, shopping basket prices returned to the deceleration path abandoned in July, despite remaining in double digits. The INE attributes the moderation of food in August to the stability in the prices of milk, cheese and eggs compared to the increase they experienced the previous year, as well as the cheaper fruits and the fact that meat, bread and cereals became less expensive in August of this year than they did in the same month of 2022.

Oil leads the increases

Compared to July levels, in the last month the price of frozen fish, skimmed milk, butter, fresh fruit, potatoes and cocoa powder have fallen between 0.2% and 4.7% %, but increases in basic products such as meat, cheese or breakfast cereals continue. In fact, the general moderation in food inflation does not mean that prices have fallen, but rather that they are rising more slowly.. They are still 10.5% more expensive than a year ago.

Compared to August 2022, the foods that have increased the most in price are olive oil, sugar and rice, with increases of 52.5%, 42.5% and 21.6% respectively. Potatoes, pork, milk, mineral water, soft drinks and juices, dairy products, cereals and legumes and fresh vegetables have also become more expensive by between 20% and 10% in the last year.

As with core inflation, food inflation is resisting. Although it is gradually moving away from its maximum recorded in February (16.6%), the data is still well above the general index and the increases are added to the already large ones from last year. Since August 2021, food prices have increased by 25.72%. The rise in prices has been especially harsh on some products such as olive oil, which has skyrocketed by 8.7% in the last month alone.. Since March 2021, 'liquid gold' has become more expensive by 114.8%, that is, its price has more than doubled. Behind this increase, farmers point to the drought, which has ruined the crops of the last two years, in which production does not meet demand.

These accumulated increases in prices make a dent in the pockets of consumers. “Although we have a CPI well below the European average, food prices, with a rise of 10.5% in August, less than last year but skyrocketing throughout the year, and fuel prices, which have increased 7.2%, make it very difficult for households to continue supporting increases in prices of goods necessary for everyday life,” denounced the Secretary of Union Action and Employment of USO, Sara García.

With the next ECB meeting just around the corner, the spotlight remains on price behavior throughout Europe. “It is to be expected that the CPI and the underlying CPI will not move towards the 2% objective in the short term, but will converge at an intermediate point between the two,” predicts the head of Economic and Financial Analysis at Ibercaja, Santiago Martínez. Along these lines, the OECD warned last week that inflation has acquired a “generalized and persistent” nature in the eurozone, although Spain is among the least affected countries. The forecasts of the European Commission, updated this Monday, indicate that the Iberian country will be the one that closes 2023 with the lowest inflation rate among the six large European economies, around 3.6%.

The acting Minister of Agriculture, Fisheries and Food, Luis Planas, has attributed the increase in the price of olive oil to the fact that this year's production has been “abnormally low”, mainly due to the drought.. He did so at the press conference after the Council of Ministers, in which he expressed confidence that the latest rains could improve the situation for the next campaign, although he clarified that it is still too early to advance an estimate on the production volume or price evolution.

With just over two weeks left until the end of this year's campaign, Planas has estimated this year's olive oil production at around 660,000 tons, which is 55% less than usual, since, As explained by the minister, they are usually around 1,400,000 tons. This decrease has been produced mainly by the lack of rain, as recognized by the minister, who has stated that one of the “most significant” consequences of the drought is the reduction in food production.

The inflation data published this Tuesday by the INE reflect a moderation of three tenths in the CPI for food, whose annual variation rate remains in double digits. Food is still 10.5% more expensive than a year ago. The price increase has been especially harsh on olive oil, whose price has skyrocketed by 52.5% compared to August 2022. In the last month alone the price of 'liquid gold' has increased by 8.7% and in the last year and a half, since March 2021, it has doubled.

“We are in a context of a campaign of high prices, this campaign and the previous one,” acknowledged the head of Agriculture, who explained that there is a direct relationship between the volume of oil production and the final price.. The lower the production, the higher the prices, given the difficulty in meeting demand.. However, the minister has positively valued the fact that, despite the rise in prices, the supply of the markets has been maintained thanks to the stock.

Planas has pointed out that the latest rains could be beneficial for the growth of olives for the next campaign.. “This rain comes at a good time, we are still in the fattening phase,” he noted.. However, the minister also recalled that the high temperatures in April harmed the flowering of the olive trees. Although it is still early to make estimates, the minister has pointed out that next year a recovery in production can be expected after an “abnormally low” campaign, although “very likely” it will not exceed one million tons.. “Without a doubt, the campaign will be more important in volume than the previous one, but it is still too early to make an assessment,” he clarified.

Rice, sugar and cereals

The head of Agriculture added that oil is not the only basic product whose price has become more expensive due to the drought.. “It affects both dry land, due to the absence of rain, and irrigation, due to the decrease in water for irrigation,” he explained.. The latter is the case of rice, for example. Compared to the price level of the previous year, in August these products had become more expensive by 21.6%, 42.5% and 52.5% respectively. The price of potatoes, pork, milk, mineral water, soft drinks and juices, dairy products, cereals and legumes and fresh vegetables has also risen between 20% and 10% in the last year .

According to the data offered by the minister, cereal production has also suffered this year. It has been around 11 million tons, when the usual range is between 18 and 24 million. Therefore, it will be necessary to make up for the shortage with imports.. “Spain usually buys from abroad, but this year more,” confirmed Planas, who has estimated the necessary tons at around 20 million, especially of soft wheat, corn and barley.. The “good news”, as he added, is that international markets have grown by 1%, so there is cereal available “at a good price”.

Given the reduction in production due to the drought, Planas has defended the effectiveness of agricultural insurance and has pointed out that last year's figures have already been exceeded. As of August 31, damages worth 974 million euros have already been assessed – more than half corresponding to compensation derived from the drought – so it is expected that in 2023 the compensation will exceed 1,000 million euros. , compared to just over 800 million in 2022. “It is a magnificent and very effective instrument,” stressed the minister, who predicted that this year will be “the year with the highest accident rate in the history of agricultural insurance” due to the proliferation of adverse weather phenomena. In addition to agricultural insurance, Planas has also highlighted the Government's commitment to the agricultural and fishing sector, materialized in the aid packages approved throughout 2023, and has valued the CAP.

What you think is going to happen with inflation matters (a lot) to the European Central Bank (ECB). Indeed, this issue will – no doubt – be the subject of heated debates in Frankfurt next Thursday, when eurozone central bankers will decide whether or not to raise interest rates once again.. Something that has a full impact on the mortgage payments that almost four million families in Spain pay each month and, less obviously, on all economic activity in the eurozone.

What we expect to happen with prices in the future – that is, our expectations – is as important or even more important for central banks than the inflation data that is known each month.. Because, although it may seem like an exaggeration, the perceptions that households and companies have about how prices will evolve in the coming months or years can end up coming true in the manner of a self-fulfilling prophecy.

That's why central banks around the world put so much emphasis on the importance of keeping inflation expectations “anchored.”. A recurring term in the jargon of central banks and that the president of the ECB, Christine Lagarde, has used on numerous occasions. The last one, last Monday, when he highlighted the importance of effective communication “to ensure that medium-term inflation expectations remain anchored,” he noted.

But what does Lagarde mean by that “anchorage”? We are talking about inflation expectations being anchored when the opinion of families and companies about the future of prices is aligned with the ECB's objectives.. That is, when both broadly agree in their expectations with the 2% medium-term goal pursued by the European Central Bank.

Family expectations are measured through monthly surveys prepared by the ECB. In the last one, published last Tuesday, a slight rise of one tenth in 3-year expectations and inflation was recorded to 2.4%, four tenths above the ECB's claims.

A movement that, however insignificant it may seem, can tip the balance towards a new rate hike next Thursday. This is what ING analysts believe, for example, who believe that this very slight rebound gives arguments to the most cautious members of the ECB who are betting on a new rate hike.

Furthermore, the complexity of the eurozone economy – with 20 different fiscal and economic policies – adds further difficulty to the ECB's task.. For example, while families in Spain or France believe that inflation within three years will be around 2% year-on-year, in Italy – which has suffered more from the consequences of the war – households place it at 3%.

Why does what we think matter so much?

The power of expectations lies in their ability to come true.. People's beliefs, justified or not, about inflation condition their decisions. And this has effects on the economy. “If workers think that inflation will remain high, they will expect higher salaries and employers will raise prices thinking that costs eat into margins,” says Javier Ferri, researcher at Fedea and professor at the University of Valencia.

When inflation is low, citizens tend to pay little attention to price increases. This is what it has been like between the great recession and the pandemic. However, when we experience episodes of rapid and abrupt increases like the current one, awareness of inflation increases.. That is when there is a risk that the perception will establish among households and companies that prices will remain high for a long time.

If expectations become unanchored, workers will tend to ask for higher salary increases, which in turn raise the costs of companies, which may respond by raising sales prices.. Its perception also conditions important decisions such as the hours worked, the purchase of real estate, savings or consumption.

On the business side, inflation expectations are the basis for making future decisions. Pricing, investment, contracting…. are planned based on expected inflation. In addition, expectations also affect the signing of certain long-term supply contracts.. All of this could end up unleashing the feared inflationary spiral.

“If you live in an environment in which you expect prices to rise constantly, you are going to react accordingly,” summarizes Manuel Hidalgo, professor of economics at Pablo Olavide University and researcher at Esade.. Hidalgo gives Argentina as an example, where the year-on-year increase in prices exceeds 100%. “[In Argentina] your life is oriented towards seeing how you act optimally in a context in which prices constantly change,” he adds. “The way to fight inflation is to kill expectations,” he concludes.

A question of credibility

In the end, inflation expectations are still an implicit reflection of the credibility that citizens give to central banks. “A central bank that is not credible, due to having a very undemanding past, will make long-term inflation expectations higher, which in addition to influencing current inflation will mean higher interest rates,” he points out. María Jesús Fernández, senior economist at Funcas.

This partly explains why the ECB is being so tough on rate hikes.. The danger to their credibility of falling short and risking entrenched inflation is outweighing the risk of going too far with rates and triggering a eurozone recession.. A scenario that cannot be ruled out in the coming months, given the latest GDP readings in the eurozone.

At the moment, the data indicates that the situation is under control. Expectations for price increases in the medium term remain close to 2%. Furthermore, inflation in the eurozone stands at 6.1%, still high, but increasingly further away from the maximum of 10.6% recorded in October of last year.. What is more worrying is the slowness with which the core is reduced, the indicator that discounts the prices of energy, food, alcohol and tobacco. This indicator still remains at 5.3%, just four tenths below the maximum reached in March of this year.

Of course, price control is being achieved at the cost of damaging the economy. A damage that is becoming more and more evident. The latest growth data in the eurozone paint a picture of stagnation. The euro economy froze in the second quarter and the forecasts for the second half of 2023 are not very promising.

The National Commission of Markets and Competition (CNMC) has detected numerous deficiencies in the way in which the attention services of electricity and gas marketers serve customers through the 850 calls and online queries made by their agents posing as false consumers who wanted to contract or change rates, make complaints or withdraw from a contract.

As explained by the regulator, 850 procedures were made through a technique known as “mystery customer”, which consists of posing as real customers who contact an energy marketer to be interested in certain products or services.. Also independent operators such as Alterna Operador Integral, Aldro Energía, Holaluz and Audax Renovables.

However, the CNMC maintains secrecy regarding the identity of the companies that incur one deficiency or another, the main one being “the lack of transparency in consumer information,” as reported in a press release this Tuesday.

Regulated rates and contracts at the moment

Others are “the difficulty or impossibility of contracting regulated market rates” for gas and electricity entirely online, something that was sometimes detected when the “mystery customer” called “by mistake” a free market marketer to ask for a regulated rate.

In the case of telephone contacts, the CNMC detected “insufficient pre-contractual information” in several marketers and “contracting during the call itself”, which prevents having sufficient time to study the offer in detail.. Also, “insufficient preparation of commercial agents.”

When it came to making a claim or requesting cancellation of a contract, the most common deficiency is “excessive telephone waiting times” in this type of requests, in addition to the fact that one of the marketers investigated did not even have telephone channel to contact her.

What other regulated energy marketers do not have is a website or a way to contact them on the Internet, denounces the CNMC, whose report reflects that in the online sphere it was common for their agents to have an easy time “finding basic contract data on the web pages.” of the marketers”.

After detecting these deficiencies in customer service for electricity and gas supplies, the CNMC will communicate them to the affected companies and check whether they have put in place “the corresponding corrective measures.”

In general terms, it proposes two regulatory changes, to oblige regulated marketers to have an Internet channel in which this type of tariff can be fully contracted, both for gas and electricity, and that marketers are also obliged to “record the entire commercial call”, whether the client calls or the company calls, to include pre-contractual information with the basic characteristics of the offer.