Inflation rose to 3.3% in April due to rising fuel prices | Economy

Inflation rose slightly in April to 3.3%, as announced this Monday by the National Institute of Statistics (INE). This is one tenth more than the figure recorded in March. Although the base rate, which excludes energy and fresh food, continues to be moderate, increasing from 3.3% to 2.9%. This figure reflects a de-escalation in the prices of goods that make up the Spanish consumer basket, analyzed by the consumer price index, although on a monthly basis, fluctuations in the so-called step effect continue to appear due to the recovery of regular prices. electricity tax rates after they were cut during the worst energy crisis.

Maria Jesus Fernandez, an analyst at Funcas, believes that in this case the overall price index refused to fall due to fuel prices, which have accumulated continuous increases almost since the beginning of the year. Gasoline and diesel have recovered in value thanks to ongoing supply cuts by the Organization of the Petroleum Exporting Countries (OPEC), which is seeking to support international oil prices at all costs. Added to this in April was direct confrontation between Iran and Israel. Tensions in the Middle East have weighed on the crude oil market, pushing the average price of gasoline to a new annual high last week. In particular, a liter cost 1.68 euros, which is the highest level since October last year. And although diesel fuel has reduced its production, in 2024 it has risen in price by 4.3%.

However, the price of fuel in Spain remains below the eurozone average, where, according to the latest Petroleum Bulletin, a liter of gasoline costs 1.86 euros. They are almost 20 cents more expensive than national service stations. The same applies to diesel, partly due to lower raw material costs, but mainly because tax rates are lower than in the rest of the European Union.

On the contrary, electricity prices continue to fall, and all indications are that April will be the cheapest month in the history of the Spanish electricity market. The same fall that brought VAT back to 21% before the energy crisis means regulated revenues are largely unaffected by this return to square one, analysts say. More than eight million customers who had opted for the historically cheaper PVPC rate have seen their bills drop in recent weeks compared to previous months, despite the reduced VAT rate still in effect at the time. Those who suffer from this return to normalcy are the free market consumers who are mostly on fixed contracts. In these cases, the price to be paid is pre-determined in the contract between the user and the electricity company and does not change depending on the wholesale price. Thus, another 11 points of VAT (when moving from the reduced rate of 10% to the regular rate of 21%) are transferred to the electricity bill.

Looking back, we see that April’s growth is much more modest than a year ago, when the consumer price index recorded a 4.1% increase. This means that the base effect also played a positive role this month, although Funcas warns that this statistical error is running out. In future indices, prices will no longer be compared with the high rates caused by the war in Ukraine, but with the prices of the de-escalation that occurred after last summer. This could lead to year-on-year growth, although there is no concern that it will impact core inflation.

The first rate cut by the European Central Bank is also expected in June. If implemented, it would be the first monetary authority among developed countries to lower the price of money. This decision has two main motivations: the obvious decline in inflation and the weak economic growth of the European Union. It is a fact for all international organizations that the Old Continent is crawling out of crisis, so it needs new sources of dynamism to counteract the loss of fuel. The International Monetary Fund has already cut its forecast for eurozone growth in 2024 this month from 0.9% to 0.8%.

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