Spain’s statistical institute just reported that harmonized consumer prices in August fell to 10.4% from July’s record 10.7% increase, for the first time in 4 months. However, we must consider the record hike in inflation compared to August last year (+ 10.3%) and the gas crisis caused by the restrictions on supplies by Russia, which will make this slowdown temporary.
While we don’t want to repeat the Fed chairman Powell’s mistake of underestimating the recovery in inflation, this could offer some respite for the Spanish authorities who are struggling to keep prices in check through billions of euros in aid. to families and businesses.
The slowdown will be temporary because it has been driven by a drop in fuel costs. But, with the war in Ukraine showing no hint of a truce and the Kremlin using natural gas shipments to take revenge on EU sanctions, the prospects remain difficult. To corroborate the thesis of a temporary slowdown, it is enough to put the data under the lens: the indicator that removes volatile elements such as energy and food rose to 6.4%, the highest since 1993.
In Spain, whose economy has benefited from a post-lockdown tourism recovery, high prices are already hampering job creation and hurting consumer confidence. Strikes are also possible in the coming months as the worst cost of living crisis in decades pushes workers to demand higher pay.
To counter the galloping inflation, as reported by the newspaper El Pais, the Spanish government will propose to the EU the introduction of a gas cap, freeing it from the dynamics of supply and demand of the wholesale electricity market, and of a limit on the price paid for CO2 emissions. In fact, Spain and Portugal had obtained a derogation from Brussels earlier this year, which allowed them to cut off the gas-electricity link and to pay significantly lower prices on wholesale markets than the rest of the country. ‘EU.
The numbers of Spain inaugurate a week full of inflation data: at 14:00 the German one and Wednesday 31 August those of France, Italy and the Eurozone, of which the latter should record an all-time high. Together with data on European consumer confidence, they will help the ECB board members decide whether and how much to raise interest rates at the meeting scheduled for 8 September. Some members are pushing for a 75 basis point hike, despite the real risks of a recession.