In March in Spain, the annual inflation rate – i.e. the general increase in prices from the previous year’s levels – came down to 3.3 per cent, from 6 per cent in February, a level not seen since August 2021; the monthly inflation rate, ie the increase in prices today compared to those of a month ago, was 0.4 per cent, again down from 0.9 per cent the previous month.
The fact that inflation is falling today does not mean that prices are falling: in that case inflation would be negative and would be called deflation. Instead, it means that the increase in prices was less intense than in the previous month: if in March 2022 a product cost 100 euros, today it costs 103.3, which is still increasing.
The reasons for this reduction are various and the most relevant is of a statistical nature. In fact, the inflation rate is calculated in mobile terms: the prices of March 2023 are compared with those of March 2022, those of February 2023 with those of February 2022 and so on. The starting point is therefore always different and, since last year inflation rose a lot especially from March onwards, the comparison is gradually made with months in which prices were already starting to rise substantially.
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This month’s annual inflation, for example, is calculated by comparing today’s prices with those of March 2022, i.e. the first month of the war in Ukraine, the event that caused energy prices to rise enormously and therefore in general those of a little bit of everything. Today energy prices have returned to lower levels almost everywhere, but by comparing general inflation with so-called core inflation – the one obtained by removing food and energy prices from the general index, i.e. the most volatile ones very susceptible to sudden movements – it turns out that the inflation rate is still very high.
Core inflation is usually a share of headline inflation, since the latter includes both core inflation and increases related to food and energy. Despite this, core inflation in Spain has been higher than the general index for months: an exceptional circumstance due to the fact that the reductions in food and energy prices compared to the levels of a year ago are so significant that they more than offset the increases occurred from one year to today on the rest of the products.
This means that Spanish inflation no longer depends only on the cost of energy, whose price fluctuations, if anything, drag it down: it can also be explained by an economy that is doing quite well, where consumer demand is higher than the companies are able to produce, but also from the fact that producing has become more expensive even regardless of the increases in the cost of energy, for example due to the shortage and the rise in the prices of many raw materials. All indicators suggesting that prices won’t stop rising anytime soon.
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