Inflation fell by 6 tenths in February to 2.8% due to cheaper electricity

Inflation fell by 6-tenths in February to 2.8% compared with the same month in 2023 due to cheaper electricity. Price increases on average have slowed to levels not seen in 6 months on an annualized basis. Mainly thanks to the electricity bill, which is almost 70% lower than a year ago, according to a report by INE this Thursday.

The Consumer Price Index (CPI) rose to 3.4% in January (again compared with the same month in 2023) after shock measures were partially lifted to meet the 3% deficit target following the return of EU fiscal rules.

One of these measures that is being reduced completely is the reduction of VAT on electricity, which in January was already increased from 5% to 10%, and as of Friday, March, returns to the 21% that existed before the price crisis. The suffocating inflationary process that began in 2021 with the advent of the pandemic. Energy was the first to rise, and its growth was exacerbated by Russia’s invasion of Ukraine in February 2022, which led to increased company costs.

To a greater or lesser extent, depending on the sector, companies have passed on rising costs to the prices families pay to protect their profits and earn more.

Now electricity, gas or fuel are becoming cheaper for various reasons. On the one hand, due to lower demand due to higher than usual temperatures in winter and against the backdrop of international weakness. On the other hand, through greater energy production from renewable sources.

Interannual inflation in our country has been below 4% since April. In January by 3.4%. In December at 3.1%. In November at 3.2%. Meanwhile, in October, the overall consumer price index remained at 3.5%, the same as in September. In the same month, inflation rebounded after falling below 3% in June, July and August.

Suffocating prices in supermarkets

The VAT reduction on basic food products is still in effect. This is where the main focus is. They rose 7.4% in January from 7.3% in December. However, supermarket and convenience store inflation has more than halved from a peak of 16.6% in February last year. February data will be known along with details of the consumer price index, which INE will publish on March 14. Sources at the Ministry of Economy, Trade and Business favor “stability.”

The Bank of Spain said in a report published on Tuesday that food prices have risen the most since 2021, when the current inflation crisis began due to tensions caused by the end of the pandemic, not including the energy sector.

The institution analyzed “micro” data on price changes in this inflationary crisis of establishments selling goods and services other than fuel, gas, electricity… In this process, “by sector we were talking about food products, especially processed foods, where the frequency price increases increased with greater intensity (until 2023),” emphasizes the Bank of Spain.

Inflationary pressures are also visible in some services, especially those related to restaurants. This is reflected in core inflation, which excludes energy and unprocessed foods: 3.4% in February, down from 3.6% in January. “This allows households to regain purchasing power and companies to regain competitiveness,” defends the Ministry of Economy, Trade and Business.

Currently, the main inflation risk is the impact of the wars in Ukraine and Gaza on energy prices and global trade bottlenecks.

In this last mile—in monetary policy parlance—of the inflation crisis, price increases have been concentrated in a few sectors of our country. This situation calls into question the strategy of “taming inflation” – to use the same economic jargon – by raising interest rates of the European Central Bank (ECB). For now, the institution refuses to reverse the flamethrower policy, which is to drown families, companies and states in order to provoke a crisis and thereby moderate inflation.