The rise in fuel prices leaves more increases in the shopping basket in the air with inflation increases in sight

Inflation has not gone on vacation this summer. A year after the long-awaited de-escalation began, prices have returned to an upward path that is here to stay until the end of the year. Behind the increases in the CPI in the last two months is mainly the rise in fuel prices, which have accumulated eight consecutive weeks of increases and could add pressure on a shopping basket hit by drought and poor harvests.

According to provisional data published this week by the INE, inflation rose three tenths in August to an interannual rate of 2.6% and did so for the second consecutive month, after having already increased four tenths in July compared to 1.9%. registered in june. In this way, the behavior of the CPI in the summer months par excellence has put an end to the price moderation experienced in the last year, after peaking in July of last year with a rate of 10.8%.

The origin of the increases in the CPI in the last two months is found above all in the increase in the cost of fuel, according to the INE. Data from the European Union Petroleum Bulletin show a clear upward trend in the price of both diesel and gasoline during the last eight weeks, in which both fuels accumulate increases of 12% and 8%, respectively.. The liter of diesel has gone from paying 1,437 euros at the beginning of July to reaching 1,612 euros in the last week, its highest level since mid-February. In parallel, the price of gasoline has risen from 1,591 to 1,721 euros per liter, the highest figure so far this year.

“Every summer the price of gasoline usually rises due to greater demand. We go on vacation, we take the car more, there are more flights…. The demand for fuels increases due to holiday trips,” explains economist Antoni Cunyat, professor at the Open University of Catalonia (UOC) and the University of Valencia. “At the beginning of the summer, prices usually start to rise and towards the middle there is normally a drop that ends with a rebound towards the end of the summer,” agrees Borja Ribera, professor at EAE Business School and financial adviser to GVC Gaesco.

However, this summer's rise has been uninterrupted. To the usual summer behavior, this year has been added a cut in production by the Organization of Petroleum Exporting Countries (OPEC). The body made up of large producers of 'black gold' such as Saudi Arabia, Iraq and the United Arab Emirates agreed in early June to extend the decline in crude oil production until the end of 2024 to try to contain the downward price trend.

Despite the fact that drivers have noticed the rise in prices when going through the pump, the experts consulted by 20minutos deny that there could be an escalation in fuels as abrupt as the one triggered after the Russian invasion of Ukraine, which caused the liter diesel and gasoline will exceed 2 euros in June. “The situation is different. There is a threat of recession and we have higher interest rates. A significant increase in fuel prices would add inflationary pressures, with which the ECB would continue to increase interest rates and demand would fall, which would put downward pressure on the demand for fuel and thus its price,” says Cunyat.

Impact on food

The UOC professor points out that, although a change in trend is expected, it is possible that the rise in fuel prices will continue at least during the month of September.. “If the prices of the fuels that we have now are maintained for several more months, they will end up being transferred to the rest of the prices, because they make logistics more expensive and that makes the entire chain more expensive,” he points out.

On the other hand, Ribera sees the change in trend in the evolution of fuel prices closer and is more reluctant to the possibility of contagion from the rise in basic necessities. “It is clear that the price of transportation influences the shopping basket, but lately we are seeing that the price of oil has become uncorrelated with that of essential goods.. This last year we have had a very significant drop in the crude oil price indices and it has not manifested itself in the prices of basic products,” he says.

The EAE Business School professor attributes this distancing between the behavior of oil prices and that of the shopping basket to the cumulative effect of the time lag in the transfer of the extra cost and the reluctance of prices to drop. The price of food is very sensitive to temporary elements such as poor harvests caused by drought. In this sense, the Spanish Federation of Food and Drink Industries (FIAB) has warned that the lack of rainfall and high temperatures are having a strong negative impact on agriculture and livestock. One of the products that is being most affected is olive oil, whose price has skyrocketed above ten euros per liter.

“Olive oil is one of the first products that, as a consequence of the drought, began to rebound in the market in March, and now, especially in the last month, consumers are beginning to notice the increase in price in a more significant way,” explains María Romero, a financial analyst at Afi. The acting First Vice President of the Government, Nadia Calviño, acknowledged this Thursday that “the perspective is not that there will be a short-term drop” in the price of olive oil, given that this year's harvest is being “very bad”.

Uploads in sight

Beyond fuel and food, forecasts suggest that the rise in prices will continue until the end of the year, although inflation will remain far from the record levels reached last year. Funcas' forecast, for example, predicts a gradual rise in the CPI variation rate until closing December at 5%. The comparison with the worst months of the inflationary crisis was favorable before the summer, but from now on that positive effect disappears, because inflation began to be contained a year ago.

However, core inflation, which excludes energy and unprocessed food from the calculation due to their high volatility, is expected to moderate in the coming months.. The provisional data for August already shows a drop to 6.1%. “This is what we have to watch in the coming months.”. That will be the key to seeing the impact of fuel prices. If in a couple of months we see that the underlying price rises again, it will indicate that the increase in fuel prices is spreading to the entire economy,” concludes Cunyat.