Price growth slows in June despite higher electricity and fuel prices

BarcelonaThe cost of energy, in particular the increase in the price of electricity and the high cost of fuel, has maintained this month the upward trend in the prices of consumer goods and services in Spain, according to advanced data from the consumer price index (CPI) published on Tuesday by the National Statistics Institute (INE).

Specifically, prices have increased by 2.6% compared to the same month in 2020, one tenth less than the year-on-year increase recorded in May. Compared with the previous month, the rise was 0.4% throughout the State.

The data - which are not segregated by autonomous communities - show, therefore, a slight moderation in the rise in prices, which nevertheless continue to increase. The main reason for this continues to be the rising cost of energy. It should be borne in mind, for example, that on 1 June the new electricity tariff system came into force, which has led to price increases that have pushed the electricity bill to all-time highs.

The INE points out, however, that in the case of fuels and combustibles this month there has been a slowdown in price growth, which explains why the CPI has increased at a somewhat lower rate than in May.

Moreover, it should also be borne in mind that in June last year the Spanish and world economy was just beginning to resume activity after months of severe restrictions and closures due to the pandemic, which led to a considerable drop in prices that lasted throughout the summer and autumn. This means that prices were at very low levels and that with the current recovery, price increases are occurring at a faster pace than is usual in a normal economic environment.

Core inflation remains low

Despite the rises, however, the data show that the increases are mostly focused on the cost of energy, but that once discounted, prices are almost flat. The core CPI, which discounts energy prices and other highly volatile items such as food, has risen by 0.2% this June compared with a year ago, the same rate as that recorded in May. That is, the cost of products other than electricity, fuel and food remained close to 0%.

The data agree, for the moment, with the analysis of the European Central Bank, the body in charge of keeping prices under control in the euro zone. The body chaired by Christine Lagarde has predicted that this year the cost of energy and the occasional shortage of raw materials - caused by excess demand - may cause occasional spikes in inflation, although in general prices will remain at low levels due to several factors.

The first is still high unemployment in Europe and Spain. The second, related to this, is the low rate of wage growth in the euro zone. And the third is that there are still sectors with a lot of weight in the economy that are operating at half throttle or are at a standstill because of the restrictions against covid-19, such as tourism, leisure, or the hospitality industry.