Inflation does not find a ceiling in Spain: the CPI shoots up to 6.7% in December and hits a three-decade high

Inflation continues its unstoppable escalation. The CPI stood at 6.7% year-on-year in December (compared to the 5.8% forecast by experts and 5.5% in November), led once again by an increase in energy prices ( electricity, oil, gas …) that is already permeating the rest of the basket of goods and services. We must go back to March 1992, a few months before the great crisis of the European Monetary System began (which forced several devaluations of the peseta), to find such a high annual inflation rate in Spain.

Monthly inflation (what prices have risen month by month) has beaten all expectations with a rise of 1.2% in the IPCA (the price index harmonized with the rest of the EU) and 1.3% in the pure CPI (the typical basket of the Spanish consumer). The National Institute of Statistics itself emphasizes that “in this behavior the rise in the price of electricity stands out, higher this month than in December 2020. It also influences, although to a lesser extent, the increase in food prices, compared to the decline recorded last year. “

Food and beverages have registered an annual price increase of 4.9% as a whole, while fresh or unprocessed food has soared 6.5% compared to December 2020. Finally, processed foods (they involve some intermediate process before being put on sale) have become more expensive by 3.5% per year.

On the other hand, the annual rate of change of core inflation (it does not weight fresh food or energy products) increases four tenths to 2.1%, which suggests that the rise in prices of the most volatile products is also beginning to affect the most stable goods and services. Core inflation is closely watched by the European Central Bank in making its monetary policy decisions.

Bankinter’s analysis department points out that this inflation figure is “bad news, the figure is well above our estimates (5.7%), which could reduce real consumption capacity”. If the rapid expansion of the omicron variant was already a threat to consumer confidence, the strong rise in prices (which is far exceeding that of wages) could reduce the purchasing power of Spaniards and weigh down economic activity.

In this way, ‘transitory’ inflation (according to the European Central Bank or the Bank of Spain) adds another month to the rise and there are already ten consecutive. In the case of Spain, the interannual CPI began its particular career in March, when it went from registering a rate of 1.2% compared to -0.1% in February. Since then, the CPI has been presenting higher rates that for now have not found a ceiling.

The rapid reactivation of the global economy after a 2020 of ‘hibernation’ has generated a notable imbalance between supply and demand that has been felt in the prices of raw materials and the scarce availability of semiconductor chips, in the first instance. However, later it has also started to affect a wide range of goods that are experiencing significant price increases.

To this must be added the costs of an energy transition that places the weight of electricity generation on renewable energies, whose production is intermittent and depends on weather conditions. This policy has made Europe hostage to Russian natural gas, which has reached historically high prices in recent weeks.

And inflation in 2022?

However, the consensus of experts believes that a good part of these problems will disappear and inflation will begin to moderate. The inflation rate in Spain (and in most advanced countries) is at historically high levels. “Even so, we expect the main inflationary pressures (base effects, energy prices and bottlenecks caused by the boost in demand) to be mostly transitory in nature, which would moderate inflation in 2022”, say from CaixaBank Research.

This moderation will be a process of disinflation, which does not mean that the general price increases will be maintained during the next year. Variation rates will simply be lower than those we are seeing in recent months.

“We expect headline inflation remains at levels above 4% until the second quarter 2022 From which it would moderate until the end of the year, marked by the comparison with the escalation in the final stretch of 2021. Thus, we foresee that its annual average in 2022 will be close to 3%. On the other hand, core inflation will continue to rise until mid-2022 and we expect it to be close to 2% in the 2022 average “, say the experts at CaixaBank Research.