The year 2024 has started with a resurgence in the rate of price increases. Preliminary data from the Consumer Price Index (CPI), released by the National Institute of Statistics (INE), revealed that inflation rose by three tenths in January, resulting in an annual rate of 3.4%. This upward trend was primarily driven by the hike in electricity bills, which lost some of its tax credits at the beginning of the year.

This marks the fifth consecutive month in which the inflation rate remains above 3%, a level at which it has stabilized in recent months. In December 2023, the CPI recorded an annual variation rate of 3.1%, slightly lower than the 3.2% in November but still higher than the 3.5% observed in October and September. Although the indicator has remained relatively stable in January, it has risen for the first time in four months. In terms of monthly changes, prices have increased by 0.1% compared to December.

The provisional reading from the INE attributes the rise in inflation mainly to the increase in taxes on electricity, which has made it more expensive compared to the previous year, despite experiencing price reductions during that period. As a result, consumers have felt the impact of the VAT increase on electricity from 5% to 10% since the start of the year. On the other hand, fuel prices have reportedly decreased in January, contrary to what happened at the beginning of 2023. However, precise data and category breakdowns are yet to be released and will be available by mid-February.

The relief in fuel prices is reflected in the behavior of core inflation, which has continued to decline. This particular indicator excludes the prices of energy and unprocessed food from its calculations due to their high volatility. It has recorded its sixth consecutive month of moderation, with an annual rate of 3.6%, the lowest level since March 2022. “This path of inflation moderation is compatible with maintaining support measures for households and businesses most affected by rising prices,” said Carlos Body, the Minister of Economy, Commerce, and Business.

As a result, general inflation and underlying inflation are narrowing the gap, with only two tenths of a difference. This closeness between the two indicators has not been observed since the beginning of 2021. In March of the previous year, the difference between the two rates exceeded four points, immediately following the peak of core inflation. This moderation in the index has occurred amid the resilience of the Spanish economy. According to data released by the INE, GDP grew by 2.5% in 2023 and accelerated in the final months of the year, despite stagnation in Europe.

“We, as the government, are demonstrating that economic growth, job creation, and measures aimed at social protection and the well-being of citizens, households, and companies can coexist,” defended Carlos Body. The extension of certain anti-crisis measures, such as the reduction of VAT on essential food products and aid for public transportation, led to the Independent Authority for Fiscal Responsibility (AIReF) revising its macroeconomic forecasts last week. The AIReF lowered its estimated average inflation for 2024 to 3.3%.

The movement of prices throughout the year will play a decisive role in shaping the monetary policy roadmap of the European Central Bank (ECB). In its recent meeting, held last week, the ECB decided to maintain interest rates at 4.5% for the third consecutive time. The president of the ECB, Christine Lagarde, stated that it is still premature to discuss a rate cut. However, she previously acknowledged that it is “likely” for the first relief to be implemented in the summer.

While waiting for the January data to be released on Thursday, eurozone inflation has already increased by five tenths in December, reaching an average rate of 2.9%, which is lower than the inflation rate in Spain. This increase follows a seven-month period of price moderation and moves further away from the ECB’s objective of achieving 2% inflation.