Spain is the EU country with the lowest core inflation after falling to 3.7% in June
Spain was the country with the lowest underlying inflation in the entire European Union in the month of June. This is reflected in the European CPI published this Wednesday by the Eurostat community statistical office. This indicator is the one that best reflects the extent to which inflation is spread throughout the economy and to which the European Central Bank (ECB) pays the most attention when deciding on interest rates.
Core inflation measured using European criteria —the indicator that excludes energy, food, alcohol and tobacco prices from the calculation— stood at 3.7% in Spain last month, one tenth below May. A figure lower than the average for the euro area (5.5%) and less than in the large European economies. This indicator rises to 4.4% in France, 4.9% in Italy or 6.9% in Germany.
In any case, it should be remembered that the definition of core inflation applied by the ECB is somewhat different from the one prepared by the INE month by month.. In the case of the Spanish statistical office, the underlying indicator also includes the price of food, which causes its rate to be higher (5.9% in June) than if measured using European rules.
The main core of prices in Spain is still above the 2% target set by the ECB and is slowly declining. However, the fact that this indicator is the lowest in the entire EU reflects that inflation expectations remain more controlled than in other countries. And this is not a trivial matter.
When companies and consumers assume that prices in their environment will continue to rise uncontrollably, they can end up making decisions that end up aggravating the problem.. For example, if a company believes that the CPI will rise 5% in 2023, it may decide to raise its selling prices accordingly.. The fact that this happens in a single company does not have to be relevant, but when it happens on a macro scale, the decisions end up affecting prices.
Second country with less inflation
Beyond core inflation, in June Spain revalidated its position as the country with the second lowest overall inflation in the entire EU. The general index of price increases stood at 1.6% year-on-year —the same figure as Belgium— a record that is only lower in Luxembourg (1%) within the Twenty-seven. The records of Spain are far from those of the great economies of the Old Continent. Thus, inflation in the euro area rose to 5.5% last month, while in France it stood at 5.4%, in Italy at 6.7% and in Germany at 6.8%.
Spain is also the fifth EU country in which food has become less expensive in the last year. Only Portugal, Denmark, Finland and Ireland posted better records. Food inflation stood at 10.3% last month, three and a half points below the euro area average and, again, below the figures for Italy (11%), Germany (13.8%) or France (14.3%).
Inflation in the euro area has been falling since October last year. In said month, a maximum of 10.6% was reached, which has been practically reduced by half. The main driver of this decline is energy prices, which in year-on-year terms have fallen in most EU countries.
The relief in inflation is being especially pronounced in the countries where the price of energy goods has fallen the most. Thus, in Spain this section of the CPI registered an interannual reduction of 25% last month compared to the fall of 6% at the euro area level. A decrease that is partly due to the base effect due to the strong increases that occurred in July of last year, but that has a lot to do with the Iberian mechanism to lower electricity prices that came into effect in June of last year.
This can be seen very clearly if we compare the trend followed by these prices compared to the European averages. In Spain, energy prices began to slow down clearly in September and entered negative territory in December, while in the euro countries as a whole this slowdown has been milder and declines did not start to be seen until last May.