Research Dept. News
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Monthly Report, num 292 - June 2006
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Spain: overall analysis - Prices
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Tobacco and fresh foods salvage CPI in April
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Substantial reduction in differential with Euro Area as energy prices tighten…
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The inflation rate in April remained unchanged from the 3.9% recorded the month before, according to the consumer price index (CPI). This result made it possible to improve the differential with the Euro Area, if we take into account the increase in prices to 2.4% for the Twelve as a whole, according to the harmonized CPI.
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…due to tobacco and fresh foods.
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The rise in the harmonized CPI for the Euro Area was based on prices for transport (due to the impact of fuels) and on the tourist component of the index, specifically, for hotels and restaurants. In Spain, the April index followed a notably parallel course, even with slightly greater increases but the final result was quite different in view of the fact that the increases were compensated by a sharp moderation in prices of fresh foods and tobacco. The price of cigarette packs, specifically, was affected by major swings which began as a result of the coming into force of the anti-tobacco law at the beginning of the year.
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The rise in energy prices in April was quite sharp and even higher than in the same month in 2005, in spite of the fact that that was one of the months when fuel prices grew most. In addition, services prices grew by 4.1% year-to-year pushed up by tourist prices, a group in which the monthly rise was increased by the calendar effect of Easter Week which in 2006 came later falling in April.
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Most unstable components of index set course of inflation.
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These sharp increases, which definitely would have put the CPI rate above 4%, were largely nullified by the moderation of fresh food prices, which were contained at 2.1% year-to-year (more than three points below the level at the beginning of the year). Mutton, produce and, especially, the sharp drop in poultry were key elements in this containment. On the other hand, tobacco and the slight moderation in non-energy industrial goods also played the same compensating role even neutralizing the potential rise in underlying inflation which remained stable at 3.1% year-to-year.
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Immediate prospects uncertain because of difficulty in establishing course ahead for energy and fresh food prices.
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Keeping the above in mind, the prospects for the CPI fall within uncertain coordinates, particularly with regard to energy prices and unprocessed food prices which, furthermore, are the components which have the biggest effect on swings in the index. Prices for oil by-products have kept rising in recent years to levels unimaginable only a little while ago and it does not seem as if they are going to go down significantly. The weakness of the dollar, however, could help to improve the situation.
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Producer prices of consumer goods moderating
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Prices of imported consumer goods beginning to drop.
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Industrial prices at origin held practically stable in April, within high growth levels of 5.7% year-to-year. This result is a consequence of the sharp rise in energy prices (15.4%) and to a lesser extent of progressive increases noted in prices of other intermediate goods which grew by a rate of more than 5% year-to-year in April. On the other hand, there was greater containment of prices of capital goods and consumer goods, although in the latter case there exist differences among the various product groups.
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In addition, the cumulative year-to-year growth of import prices moved up to 6.1% in the first quarter. Non-energy import prices grew by only 1.9%, basically because of intermediate goods and capital goods. On the other hand, in consumer goods we note a drop in prices arising from food products. Finally, farm products showed notable containment in February. The average increase in the first two months of the year held at a modest 2.4%, nearly eight points less than in the same period the year before.
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