|
|
|
|
Inflation continues its downward slide
|
|
The CPI falls by one tenth of a percentage point, standing at 3.0% in August.
|
|
The year-on-year rate for the general consumer price index (CPI) in August stood at 3.0%, one tenth of a percentage point below the figure for July. This points to a consolidation in the downward slide initiated in April when inflation had reached 3.8%, its highest level since the start of the crisis.
|
|
Commodities and unprocessed foods play a significant role in this reduction.
|
|
There are many reasons for this fall, occurring within a context of a slowdown in economic activity. On the one hand, and temporary in nature, is the fall in the price of Brent quality oil to 110 dollars per barrel, together with the drop in other commodities, forcing the fuel and oils component down. Unprocessed foods also cut back their month-on-month and year-on-year rates by five tenths of a percentage point, in clear contrast with the strong, anomalous rise they experienced last year. As the fall in both items, in addition to electricity, does not affect the calculation of core inflation, it's easy to see why the latter remained stable at 1.6% in terms of its year-on-year change.
|
|
|
|
On the other hand, the effects of the hike in value added tax (VAT), which took place in July 2010, have become more diluted, also helping inflation to come down. Although August's inflation figures were in line with our forecasts, we have revised downwards our estimates for 2012 due to weak domestic demand and the change in expectations regarding world economic growth.
|
|
|
The economic slowdown will reduce inflationary tensions.
|
|
The vast majority of indicators point to a slowdown in the Spanish economy. Consumer confidence has dropped again after recovering slightly over the last few months and is now below its historical average. Retail sales keep on falling, accumulating a year-on-year drop of 5.6%. Industrial production ended July down by 1.6% in year-on-year terms, while the indicator for economic sentiment also saw a slight relapse. Another sign suggesting weak domestic demand is the high contribution of fuels and oils to the total inflation rate, hence the core inflation under 2%.
|
|
|
|
Within this context, for the coming months and within a scenario of stabilizing oil prices, inflation will continue to fall until it reaches a level of around 2.4% at the end of the year. In 2012, the CPI will probably remain below 2% and might even come close to 1.5% by the middle of next year.
|
|
|
|
This scenario is not exclusive to Spain. In the euro area, inflation remained stable at 2.5% in August, although the forecast is for this figure to ease slightly by the end of the year.
|
|
Lower activity is a European phenomenon.
|
|
Inflation forecasts for the euro area in 2012 are below 2% due to the slowdown in Europe's recovery. This outlook helps to explain the end of interest rate hikes, the change in discourse of the president of the European Central Bank (ECB), Jean-Claude Trichet, and the injection of liquidity that took place in September. The ECB has an essential mandate to keep inflation below 2% in the medium term, so it now has room to manoeuvre to lower interest rates in an attempt to revive the economy.
|
|
|
|
The good news comes from an analysis of price trends, key to gauging the competitiveness of the Spanish economy and diagnosing its prospects of recovery. The principal indicator is Spain's inflation differential with the euro area, as this is our main trading partner. The harmonized index of consumer prices (HICP), which provides a comparison of the different EU countries, stood at 2.5% in the euro area while the figure for Spain was 2.7%. Although this differential is still positive, it's getting narrower month by month. The reasons for this lie in the disappearance of effects resulting from the tax changes introduced in the second quarter of 2010 and in falling oil prices, as energy products weigh more heavily in the calculation of inflation for Spain than for its European peers.
|
|
The tough adjustment is helping to regain competitiveness.
|
|
However, there is another fundamental cause: the adjustment being carried out by Spain in its prices and labour costs in order to restore competitiveness. The labour cost index shows a growth in total costs per worker below the rate for the euro area. High unemployment is probably preventing second-round effects due to inflation. In other words, although it's a slow, tortuous route, Spain is on the way to regaining its competitiveness.
|
|
|
|
In summary, inflation is still falling and this will continue in 2012 thanks to the slowdown in the Spanish economy. The good news is provided by Spain's inflation differential with the euro area and the labour cost index, which suggest that Spain is gradually recovering its competitiveness, a source of economic recovery.
|
