Inflation rises slightly to 2.3%, but core inflation remains at alarming levels: 6.2%

Inflation, which had fallen to 1.9% in June, its lowest since March 2021, rose slightly in July to 2.3%, but remains within reasonable levels. Given that this indicator does not include the elements that are a priori more volatile in the consumption basket, it is considered useful for measuring trend inflation and, until it falls, it will not give signals to the European Central Bank that it should slow down the rate of increases interest rates or stop raising them.

It is good news that headline inflation is around 2%, a level that the ECB considers healthy for the economy, but the high levels at which core inflation has become entrenched are worrying.

“The advanced CPI data for July points to a gradual stabilization of prices with inflation around 2% and core inflation around 6%,” said the First Vice President and Minister of Economy, Nadia Calviño, but The truth is that core inflation stabilizing at around 6% is not something positive.

In addition, experts such as the Funcas economists doubt the stabilization of the general index and foresee that inflation will soon recover its upward path, due to the comparison effect with a second half of 2022 in which prices rose at a slower pace.. Thus, they believe that it will reach 3.5% in September and will continue to rise until closing the year at around 5% in December.

In monthly terms, inflation rose one tenth compared to June and core inflation remained unchanged (0%). These data must be confirmed by the Institute in mid-August.

The INE has explained that the CPI has risen because fuel prices fell in July 2022, so when compared to this year, a rise can be seen. In addition, the decrease in clothing and footwear due to the summer sales has been less than that of the previous year, and tourist packages have risen more than in July of last year. Electricity and gas have fallen in price this year, compared to the rise they registered in July 2022, so they have offset the previous effects.

Prices 15% higher than in 2019

Although inflation has registered a significant decrease (at the beginning of the year it was around 6%), this does not mean that prices are going down, but only that what they rise is decreasing compared to last year: in February prices were 6.1% more higher than in February 2022 and are now 2.3% higher than in July of last year.

For this reason, prices have accumulated a 15% rise since the summer of 2019, before the pandemic broke out, and this increase has caused the impoverishment of families, whose incomes have not increased in the same proportion.

Even so, despite the general increase in the cost of the goods and services that we acquire, consumption has not yet suffered; in fact, between April and June, household consumption grew by 1.6% compared to the previous quarter, while in the first quarter it had fallen by 1.4% compared to the previous one. This good behavior of families' willingness to spend -together with the good pace of business investment- allowed the Gross Domestic Product (GDP) to continue growing in the second quarter, albeit at a slower pace (0.4%, according to The INE has also published today), without actually entering into contractive terrain as has happened in other countries, such as Germany.