After a year of inflation rates in Spain that have not been seen in a very long time, December has not bucked the trend. Consumer price inflation (CPI) in the last month of 2021 rose 6.7% compared to December 2020, according to advance data published today by the National Statistics Institute (INE).
This indicator has been rising since March, after an anomalous deflationary period caused by the outbreak of the coronavirus pandemic in early 2020. December marks the ninth month with a rate above 2%, which is the limit that the European Central Bank (ECB) considers to be optimal. Drifting below this target means a serious compromise of economic growth, and going above it – as has been the case since April 2021 – puts household purchasing power at risk, forcing consumers to spend more to cover basic expenses at the cost of other spending.
In its advance release, the INE explained that the rise in power bills has had a particular influence. In January, the definitive data will be published, and will include the exact weight of each component from the CPI.
It was to be expected that energy costs – the wholesale price of which broke yet more records in Spain last week – would be among them. Also among the goods that are pulling prices up are foodstuffs. The INE added that gasoline and lubricants for personal vehicles are among those categories that have gotten cheaper since last year.
In November, inflation came in at a year-on-year increase of 5.5%. This was the highest rate since October 1992. December has continued that trend, and the indicator does not yet seem to have peaked. To find a similar precedent, the rate of March 1992, nearly three decades ago, came in at 6.9%.
More favorable is underlying inflation, which is used by analysts to anticipate the future maneuvers of banking regulators. This rate eliminates the price index of unprocessed foods and energy products. For this indicator, Spain has been showing more-contained rates than the eurozone as a whole, and according to advance data from the INE, the year-on-year increase for December is 2.1%. However, this is still four-tenths of a point up on November, is the highest percentage since March 2013, and exceeds the psychological barrier of 2%.
In monthly terms, prices went up 1.3% in December compared to the month before. This is the biggest rise for the last month of the year since 1983. The harmonized CPI, an indicator with international standards used to make comparisons between countries, came in at a 1.2% month-on-month rise, while the annual figure is also 6.7%.
This inflationary pressure is not confined to Spain. Prices in the eurozone grew 4.9% in November (the December figure will be released next week), and in the United States the rate has been even higher for months now.
While inflation is one of the issues that most concerns economists, central banks have played down its importance, insisting that it will be transitory. Coronavirus lockdowns had a negative effect on activity and consumption, pulling prices down. As the economy starts to bounce back, the opposite phenomena is being seen. The main fear of analysts is that this tension will last longer than expected, thus affecting household purchasing power and forcing the withdrawal of economic stimulus from the ECB.
For Spain and other countries whose recoveries are happening slower, this would be a problem given that access to loans, which is how this recovery is being financed, would be more complicated.