Inflation rises nine tenths to 3.5% in September due to electricity and fuel

Inflation has taken flight again in September, driven by the prices of electricity and fuel. Thus, the Consumer Price Index (CPI) that the National Institute of Statistics (INE) published this Thursday indicates that inflation stands at 3.5% year-on-year, nine tenths above the figure recorded last August.. On the other hand, underlying inflation – inflation calculated by discounting the prices of energy and unprocessed food – fell three tenths and fell to 5.8%.

The Ministry of Economic Affairs points out that the data “allows Spain to be among the countries with the lowest inflation and highest growth in the euro zone for more than a year.”. “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.

The rise in inflation falls within what most analysts expected. For example, Funcas—the foundation of the old savings banks—predicted that consumer prices would rise by up to 3.6% this month, one tenth more than what finally happened.. And the acceleration of inflation that we are seeing is due, not so much to the fact that consumer prices are skyrocketing as to the fact that comparisons with the months of 2022 are increasingly less favorable.. This is what is known as the 'base effect' or 'step effect.

Inflation is normally measured in internal terms, so the data depends both on the prices recorded in September of this year and on 2022. The sharp drop in energy prices that began to be noticed since September of last year makes comparisons with current data now increasingly unfavorable.

Energy prices began to reduce significantly from September 2022 and continued to do so until May of this year. Consequently, in the coming months energy inflation will rise, not only due to the effect of the rise in oil, but because comparisons will be made with increasingly lower prices and, therefore, will be more unfavorable.

In fact, if we compare consumer prices in September with those in August instead of in year-on-year terms, we see how they have barely risen by 0.2%.. A figure that is within normal by historical standards for this month – the average between 2002 and 2023 for September is 0.15%.

However, this does not mean that the sharp rise in fuel prices is contributing to fueling inflation.. This is how the Bank of Spain sees it, which has undertaken a significant upward revision of its inflation expectations for 2023 and 2024 due to the increases in the price of oil that have been seen in recent months.

The banking supervisor expects that the interannual CPI will continue to rise in the remaining months of the year due to a combination of the already mentioned 'base effects' and the rebound in the international price of crude oil due to the production cuts announced by the countries of the OPEC+. If the forecasts are met, inflation will return to around 5% in January 2024 and then decline again to reach the target of 2% at the end of next year.

Regarding food, the Bank of Spain is confident that the downward path that began in 2023 will be maintained. However, expectations for energy prices are much less promising. The supervisor estimates that these could shoot up to 25% year-on-year in spring, driven by the end of energy support measures scheduled for 2024.