The eurozone has cautiously returned to the path of price moderation at the beginning of 2024, with a slight decrease to 2.8% in the annual variation rate of the CPI. However, the slowdown has not been uniform across all the partner states of the single currency. According to harmonized data released this Thursday by Eurostat, inflation in Spain has increased by two tenths in January, reaching a rate of 3.5%, which moves the country further away from the European average.

The CPI variation rate in the eurozone has moderated in January by one tenth, compared to the 2.9% recorded in December, although it is still above the 2.4% registered in November, which was the lowest figure since July 2021. In the last month of 2023, inflation broke the downward trend that had been ongoing for thirteen months (except for April), after reaching its peak in October 2022 with a rate of 10.6%. In the past 31 days, prices have fallen by 0.4% compared to the level at the end of the previous year.

The behavior of inflation in the eurozone in January has been influenced by the drop in the price of energy, which is now 6.3% cheaper on average compared to a year ago. When excluding the impact of energy, the rate is reduced to 3.8%, down from 4% in December. On the other hand, unprocessed foods have become more expensive by 7% in the last year, which is two tenths higher than the previous month. However, when excluding both energy and unprocessed food from the calculation – as they are characterized by their price volatility – underlying inflation in the eurozone has moderated for the tenth consecutive month, recording a decrease of three tenths to an interannual rate of 3.6%, its lowest level since March 2022.

The moderation of prices in the eurozone contrasts with the increase in inflation registered in Spain, where the year-on-year variation rate of the CPI grew by two tenths in January to 3.5%, according to harmonized data from Eurostat (still provisional). Therefore, the Spanish index is now seven tenths above the eurozone average, after returning in January to the level recorded in October, following two months at a rate of 3.3%.

In the absence of final data, the National Institute of Statistics (INE) attributed the rise in inflation in Spain to the reduction in tax reductions implemented by the government in the price of electricity, which has led to an increase in its cost. Starting from January 1, VAT on electricity increased from 5% to 10%, as an intermediate step before returning to the original rate of 21%. Similarly, the electricity tax has increased from 0.5% to 2.5%, and it will continue to rise in the coming months — reaching 3.8% in June and returning to the original 5.11% in July.

Among the four largest European economies, Spain has the highest inflation rate, although prices have also accelerated in Italy in January, with a rise of four tenths, bringing the interannual rate to 0.9%. On the other hand, inflation has moderated in Germany and France by seven tenths, standing at 3.1% and 3.4%, respectively. In both cases, these figures are above the eurozone average.

Therefore, with the exception of Italy, the data for the major European economies are still far from the ECB’s 2% inflation target. The European Central Bank (ECB), headed by Christine Lagarde, closely monitors the evolution of inflation in the eurozone partner states to determine the course of monetary policy. In its recent meeting, held last week, the ECB decided to keep interest rates unchanged at 4.5% for the third consecutive time. Lagarde explained to the media that it is still premature to discuss a rate cut, although she had previously acknowledged that it is “likely” that the first easing measures will be implemented in the summer.