Electricity prices cause 6.7% inflation this December

MADRIDElectricity prices have once again marked the monthly consumer price index (CPI). This December, the price increase was 6.7% compared to a year ago, more than one point above November's rate (5.5%), and has become the highest level since 1992. The main reason is the upward spiral in electricity prices and, to a lesser extent, food prices. Month on month, prices have risen by 1.3%, according to advanced data published this Monday by the National Institute of Statistics (INE).

However, INE also stresses that in the case of food the impact of what economists call the base effect must be taken into account: the fall in prices in 2020 explains part of the strong year-on-year growth recorded a year later, when the economy is partially recovered. For now, the main supervisory bodies forecast a rise in inflation as a "temporary" situation, although they admit that it will be "more persistent" than expected and will have an impact on economic growth. In fact, the Bank of Spain believes prices won't peak until next spring, when lower costs, especially in energy, may cause a fall in inflation rates.

Unlike electricity and food, the prices of fuel and lubricants for personal vehicles recorded a fall compared to last month. In addition, the INE incorporates underlying CPI data, i.e. the figure that does not take into account products with more volatile prices such as unprocessed food and energy products. In this case, it stands at 2.1% (the highest rate since March 2013), but four points below the overall CPI.

Although as a general rule an increasing CPI makes families lose purchasing power, the year-on-year figure of the index for the month of December is used as a reference in some agreements that maintain a safeguard clause (despite the fact that over the years they have mostly disappeared) to compensate for increases such as the one recorded this December. Thus, in the event that in mid-January the INE confirms this advanced data, these agreements will have to take as a reference either the 6.7% anticipated today to calculate their revaluation or the annual average. "It depends on what each agreement says, because as there is quite a difference there are conflicts in the interpretation. There will be no "official" rule," says the professor of economics at the UB Jordi Garcia.

The unions have pointed out that this upturn in inflation has to be translated in some way in an improvement of purchasing power. Some experts say salaries should increase if inflation continues, albeit not pegged to the general CPI to avoid second-round effects, i.e. a loop in which an increase in wages in turn leads to a further rise in prices.