Food prices in May fell by three tenths and amounted to 4.4% | Economy
The services sector, electricity and fuel made the shopping basket more expensive in May, as confirmed this Thursday by the National Institute of Statistics (INE). Inflation rose 3.6% year on year, up three-tenths from the previous month and the highest since April 2023. Core inflation, which excludes fresh food and energy items as they are the most volatile, also rose for the first time in a year to 3%. This is the result of the constant increase in prices for tourism services, such as travel packages and hotel services. However, food gave consumers a break and recorded a three-tenths decline to 4.4% year-on-year as fruit and meat prices fell.
In 2024, the cost of travel packages and accommodation continued to rise steadily. And while the recovery is more modest than last year, the truth is that strong demand has seen the index in these groups reach a difference of around 30 points from levels recorded at the start of 2022, just before lockdown restrictions were lifted. travelers, which were introduced due to the pandemic in most countries.
This growth trend looks set to continue until the end of the year, which is why the Bank of Spain this week revised its forecasts for headline inflation to be slightly higher than they predicted in March. In particular, they expect the annual average harmonized with Europe to be 3% instead of 2.7%; Among the reasons for the changes, they cite the influence of the service sector, especially in the tourism and hospitality sectors. “It was expected that once pre-pandemic levels were reached, tourism demand would grow at a much more moderate pace, but this has not happened because there are still many households that have large savings and in this area Spain is a very competitive country “says Raymond Torres, director of economic situations at the think tank Funcas.
Electricity also put upward pressure on the consumer price index in May, unlike what happened in the same month the previous year when the index fell. This, however, does not reflect the dynamics of the cost of electricity, as the megawatt hour (MWh) closed in May at 30 euros, a historically low figure that allowed for a quarter with very cheap energy. However, this price dynamic reversed in June and bills are expected to increase in the second half of the year as a result of lower renewable energy production recorded in the summer, as well as higher demand for air use. air conditioning and because the price of natural gas has increased.
The third factor explaining the evolution of the CPI is the rising trend in fuel prices. Its rise in price is explained by the consistent reduction in supplies by OPEC (Organization of the Petroleum Exporting Countries) producing countries and growing tensions between Israel and Iran. And all this despite the fact that in May, after four months of increases, fuel prices fell. At the beginning of the month, gasoline prices recorded their first decline in 15 weeks, and this trend has continued, although with less intensity. According to the European Union’s oil bulletin, in the last week of May the price of gasoline 95 was around 1,648 euros per liter, below the level recorded in the previous week and very far from the highs that the fuel reached in the summer of 2022. The two euro barrier has been overcome. The price of diesel, also on a downward trajectory, was close to 1.49 euros per liter.
In contrast, food gave consumers a break and recorded a decline of three-tenths to 4.4% year-on-year. This gives analysts reason to think that the index’s growth is within expectations, despite a three-month upward trend. “The trend hasn’t changed, it hasn’t accelerated,” Torres says. In his view, base effects explain most of the fluctuations in the consumer price index, and he expects them to subside before the end of the year.
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