Spain remains the largest economy in the EU with the least inflation, but it is once again the one where food prices rise the most

Spain has now accumulated eleven consecutive months as the large EU economy with the lowest inflation. In September, consumer prices rose 3.3% in the country, a figure that is still lower than the eurozone average of 4.3% last month. However, the favorable differential that the national economy has enjoyed for almost a year is gradually being exhausted. In fact, in categories as important as food, which represent 20% of the consumer basket, Spain is once again the country with the highest price increases among the 'top 4' economies in the eurozone.

This is reflected in the final data of the Harmonized Consumer Price Index (HICP) for the month of September published this Wednesday by Eurostat. Last month, annual inflation in the eurozone as a whole fell from 5.2 to 4.3%, the eleventh consecutive fall since the ECB began raising interest rates. Among the large European economies, Germany recorded inflation of 4.3% (2.1 points less than in August), France of 5.7% (unchanged) and Italy of 5.6% (one tenth more than the month former).

Price increases slowed in 21 of the 27 EU member states, while they accelerated in five other countries (Spain, Italy, Ireland, Slovenia and Cyprus) and stagnated in France.. These opposing trends have a lot to do with what happened to prices this time last year.

In most eurozone countries, the rise in inflation last year peaked between October and November. However, in Spain the peak came in June 2022 because energy inflation was reduced earlier and faster thanks to the Iberian mechanism to limit the price of gas in electricity production.. This caused prices to slow down earlier in Spain than in the rest of the eurozone.. This favorable effect has already been exhausted in Spain where inflation hit the bottom in June 2023, but it still has a way to go in the rest of Europe.

Food inflation stagnates

Eurostat data reflects that food inflation is resisting going down in Spain compared to what is happening in the rest of Europe. Unlike what happened with the general IPCA, in the shopping basket the peak was more synchronized in the eurozone. The ceiling was reached in February and March of this year and since then inflation in the shopping basket has been clearly reducing in all countries.

However, in recent months Spain has remained stuck in this decline. Food inflation has barely moved since last June and remains stable at around 10%. However, in the rest of the large European economies, the price increase in the supermarket is already below 10%. This has caused Spain to once again be the large European economy with the most inflation in the shopping basket, something that has not happened since July 2022.

It is striking that Spain is the only country along with Denmark in which the interannual IPCA for food did not decrease in September compared to August. In the eurozone, food inflation fell from 10.3% to 9.1%, while in Spain it remained stable at 10.5%. This is one of the keys that explains why the favorable inflation differential that Spain has with respect to the eurozone is reducing.

If we analyze which products are contributing the most to raising prices, we see how food contributed 2.1 points to inflation in Spain compared to 1.5 in the Eurozone.. Last June, when the gap between Spanish inflation and that of the euro countries reached its maximum (3.9 points), food contributed two points to the CPI in both cases.

But the main factor that is allowing Spain to maintain its advantage over the EU continues to be the price of electricity.. In September, the prices of basic housing supplies—where the electricity bill has a very prominent weight—subtracted 1.7 points from inflation in Spain, compared to 0.4 in the eurozone. However, the favorable differential that Spain still maintains in this component has been reduced considerably.. Last June, the contribution to inflation of these products was -1.6 points in Spain and 0.6 in the eurozone. It has now been reduced to -1.4 points in Spain and -0.4 in the eurozone.

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