Inflation remains at 3.5% in October thanks to food and lower fuel prices

Inflation has given an unexpected respite in October. The rise in consumer prices remained stable at the 3.5% that was already recorded in September. A positive surprise that is due to better-than-expected food performance and the drop in fuel prices. This is reflected by the National Institute of Statistics (INE) in the first advance of the Consumer Price Index (CPI) corresponding to October released this Monday.

Although it is not yet known in detail how the prices of each product have evolved – we will have to wait two weeks to find out – the first data suggest that both food and fuel have managed to offset the 'base effect' caused by the drop in the price. electricity price. In the case of the shopping basket, the positive impact is due to the fact that the increases in food prices have been more moderate than in October of last year, while in fuel the reason behind it is, directly, a decrease in prices.

It is important to remember that the inflation data is usually analyzed in year-on-year terms, so the figure is conditional both on what happened in October 2022 and on the evolution of prices this month.. At this time last year, the electricity bill became considerably cheaper. This means that, if electricity prices remain stable, inflation will be higher due to the effect of comparing prices with a more favorable month.. However, it seems that this effect has been offset by gasoline and fuel.

In addition, core inflation – the indicator that deducts energy and unprocessed food prices from the calculation – fell six tenths and stood at 5.2%.. This is the lowest core inflation rate since June 2022. This indicator is especially important because it reflects well the structural impact of an inflation episode.. In fact, it is the reference indicator for the European Central Bank (ECB) when deciding what to do with interest rates.

The monthly evolution of prices also gives a favorable reading. If we go beyond year-on-year rates and look at how consumer prices have varied between October and September, we see how they increased by only 0.3%. This figure is below the October average of the last 20 years (0.8%) in a month in which the prices of clothing and footwear usually increase sharply.

The Ministry of Economic Affairs points out that the data released this Monday consolidates Spain as “one of the main economies in the euro zone with lower inflation and higher growth.” “The economic policy measures adopted by the Government are favoring the competitiveness of Spanish companies, the gain in market share and the increase in the purchasing power of salaries,” they add.

Surprises and uncertainties

That inflation has remained at 3.5% has come as a surprise to most analysts. The bulk of the forecasts predicted that price increases would accelerate this month due to base effects. For example, Funcas – the study center for the old savings banks – counted in its forecasts that inflation would rise to 4.1% this month.. The Bank of Spain also expected that inflation would continue to rise uninterruptedly until the beginning of 2024.

However, the lull that inflation has given in October does not have to be repeated in the coming months. The 'base effect' caused by the drop in electricity prices in autumn last year will continue to work against a reduction in inflation. In this sense, the role that the oil price plays in the coming months will be key. If the war between Israel and Hamas in Gaza escalates and spreads to other areas of the region, oil prices could soar, adding further inflationary pressures.