Inflation moderates six tenths in February and drops to 2.8% due to the lower price of electricity

Prices have returned to the path of moderation in February after the rebound in the January slope. According to provisional data released this Thursday by the National Institute of Statistics (INE), inflation has slowed in the second month of the year to an interannual rate of 2.8%, the lowest in six months. The relief has been mainly due to the reduction in the electricity bill, which has fallen to its lowest level in three years. The price of food has also stabilized, compared to the increase it suffered a year ago.

Inflation has moderated six tenths with respect to the interannual rate of 3.4% recorded in January, falling below the 3% barrier for the first time in half a year.. The start of 2024 brought with it an acceleration in the pace of price increases, driven especially by the increase in VAT on electricity to 10% after the partial extension of anti-crisis measures. This increase in the annual variation rate of the CPI interrupted the downward trend undertaken in the last months of 2023, which closed December at 3.1%. If confirmed, February's inflation figure will be the lowest since August, when the indicator stood at 2.6%, immersed in a full rebound. In the last month alone, prices have increased by 0.3% in monthly terms compared to January levels.

The slowdown in inflation in February – which does not mean that prices have fallen across the board, but rather that their rate of rise has slowed down – has been fundamentally due to the lowering of electricity prices, which closed the month below 43 euros per MWh. This figure, which represents the lowest average monthly price since February 2021, is very far from the 76.72 euros that were paid per MWh a year ago. The INE highlights that the lowering of electricity prices compared to 2022 contrasts with the increase in prices registered a year earlier. The decrease in the price in the last month has brought forward the increase in VAT on electricity to 21% to March. The tax credit enjoyed by electricity will decline sooner than expected as the average price in February does not exceed 45 euros per MWh.

In addition, the INE also attributes the decline in inflation to the stability in food prices, whose particular rise peaked precisely in February 2023, reaching an interannual rate of 16.6%.. Without knowing the data for the last month, in January the CPI for these essential products recorded an interannual variation rate of 7.4%, one tenth above that registered in December and the second lowest figure since the beginning of 2022.

On the other hand, the price of fuel has increased compared to February 2023, compared to the decrease experienced in the previous year.. According to the European Union Petroleum Bulletin, fuel prices have risen for six consecutive weeks. In the last week alone, gasoline and diesel have become more expensive respectively by 0.44% and 0.19%, until a liter of super 95 is paid for 1,605 euros at the pump and for diesel, 1,561 euros.

The underlying continues to decline

By discounting the price of energy and unprocessed food from the calculation due to their high volatility, underlying inflation has continued the downward path that began in February 2023. Specifically, the indicator has moderated two tenths to an interannual rate of 3.4%, six tenths above the general index. The Minister of Economy, Carlos Body, has highlighted that underlying inflation is at its lowest level in two years, which in his opinion “is allowing households to recover purchasing power and companies to regain competitiveness.” “We therefore make price moderation compatible with the maintenance of the social shield and support for the most needy homes and families,” he added.

“There are enough uncertainties about energy prices, about raw material prices and some other things that force us to be cautious,” said the general secretary of CCOO, Unai Sordo, who, despite recognizing that the moderation of prices It is “good news”, he has warned that we will have to wait to see if inflation goes towards its “definitive containment” or if it registers “peaks” again.

With the drop in February, the indicator is approaching the 2% objective to which the European Central Bank (ECB) intends to return inflation. The body chaired by Christine Lagarde is closely monitoring the evolution of prices, ahead of its meeting next Thursday. In the latest appointments, the monetary authority has kept rates unchanged at 4.5% after a year of increases. Lagarde herself has pointed out that it is “likely” that the first relief in access to financing will arrive in the summer, so for the moment no rate cuts are expected.