Inflation is situated again at maximums since 2023 due to the increase of fuels

BarcelonaThe cost of living for families continues to rise due to the increase in energy prices –particularly fuels–, and it stands at highs not seen since February 2023 for the second consecutive month. Specifically, in September, prices for all consumer goods and services in Catalonia soared by 4.5% compared to the same month a year ago, according to Consumer Price Index (CPI) data published this Wednesday by the National Statistics Institute (INE).

Compared to August, price growth in Catalonia is 0.1%, two tenths of a percent less than the increase recorded in Spain. For the country as a whole, annual inflation stood at 4.9%, six tenths of a percent higher than that recorded during the previous month, just as the INE had already announced two weeks ago.

Annual CPI increases above 4% in both Catalonia and the country as a whole are more than double the 2% annual target set by the European Central Bank for the medium and long term. They also place the Catalan and Spanish inflation rate above the European average and that of other major economies in the eurozone, such as Germany, Italy, and France, which in September recorded price increases of between 3% and 4%.

Furthermore, core inflation, which does not take into account the most volatile items such as energy prices, has risen by two tenths of a percent both in Catalonia, to 3%, and in the country as a whole, to 3.1%. The INE points to the prices of recreational activities, sports, and culture, as well as transport, as the main factors behind the price increases.

Energy hits wallets hard

The root of the rise in oil prices lies in the war in Iran initiated by the United States and Israel last February. Since then, the conflict in the Persian Gulf has decimated the production capacity of some of the world's main crude oil exporting countries and has caused Tehran to close the transit of ships through the strategic Strait of Hormuz, through which 20% of the world's oil exports passed.

The conflict has sent oil prices soaring, which in September once again surpassed the symbolic barrier of 100 dollars per barrel in the case of Brent, the benchmark crude in Europe. This Wednesday the price per barrel stood above 106 dollars.

The rise in energy costs has been felt in the bills of Catalan families. Thus, on average, the prices of electricity, water and natural gas were 13% more expensive in September than a year ago and 2.4% higher than last August.

Despite this, fuels are the element that has grown the most within the entire household consumption basket: in one year, the price of gasoline and diesel has risen by a notable 24.4% in Catalonia. Between August and September, the increase was 4.8%, according to data from the INE.

Faced with this situation, the Spanish government approved a package of measures at the end of March, including VAT reductions and taxes on fuel and electricity, to mitigate the effects of the energy crisis on citizens' finances. These initial measures have been revised up to the last package, approved at the end of September, which is why it has a limited effect on the CPI data presented today by the INE.

In a statement, Pedro Sánchez's executive boasted that "the response plan measures continue to moderate the rebound in inflation". Among the measures being maintained is the reduction of 20 euro cents per liter of gasoline and diesel, which is extended until at least November 1st. The limitation on the natural gas last resort tariff is also maintained.

However, neither VAT cuts nor reductions in the special tax on electricity bills are coming into force, since the price of electricity increased by 11.4% annually in September on average in Spain, below the 15% that, in accordance with the measures approved by the government, would trigger the tax reduction.

Without second-round effects

For the moment, the bulk of inflation is concentrated mainly on rising energy costs and, as yet, the so-called second-round effects have not been detected, the phenomenon by which the continued rise in electricity, gas, and fuel prices ends up forcing companies to pass this cost increase on to the price of their products. This means that what was initially just an increase in energy costs ends up becoming a generalized increase in the cost of most of the shopping basket.

In the previous inflationary episode in Europe, which took place following the Russian invasion of Ukraine in February 2022, this phenomenon occurred at the end of that same year and during 2023, months after the initial energy price shock caused by the conflict and the sanctions imposed by Western governments on Moscow.