[Economics] Inflation slows in August: prices slow by six tenths, to 2.2%, bringing the end of the crisis closer

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August, the main month of summer vacations, saw inflation slow down. Prices fell six-tenths of a point compared to July, to 2.2%, according to the preliminary data published this Thursday by the National Institute of Statistics (INE). This is the lowest rate in a year and exceeds the forecasts of analysts, who expect levels close to 3% by the end of the year. Core inflation, which excludes fresh food and energy products because they are the most volatile, also fell one-tenth of a point to reach 2.7%. These data suggest that the country is close to the end of the inflationary crisis, as it is the second consecutive month in which the Consumer Price Index (CPI) has fallen six-tenths of a point, more than one point in total. The Ministry of Economy also points out that "they reflect the effectiveness of the Government's economic policy measures, because they make it possible to combine one of the highest growth rates in the Eurozone with this progressive moderation of prices and the recovery of household purchasing power."

 

If we compare the current situation with that of a year ago, we can see qualitative differences. At that time, the rate, which stood at 2.6%, was a preview of the increases to come at the end of the year. The outlook continued to deteriorate due to the rise in oil prices and a base effect that pushed up. Average inflation between January and August was 3.6% and underlying inflation remained very high, above 6%. Today, all these figures have lost weight. Despite the geopolitical tensions between Israel and Hezbollah, Brent remains below $80 per barrel, far from the $100 reached at the height of the inflationary crisis. And the forecasts of experts in the sector are that it will even fall below this level next year. As the months go by, the base effect has been smaller, leaving behind the large variations of last year, and underlying inflation has fallen more than three points since then.

 

The gas market, which is key to setting electricity prices, has also forgotten the high prices that exceeded 300 euros per megawatt hour at the height of the Russian invasion and even the 50 euros it was at this time last year. On this occasion, despite the turbulence recorded in recent weeks due to fears that part of the Russian flow to Europe might be interrupted as a result of the Ukrainian incursion in Kursk, natural gas does not exceed 40 euros MWh. In addition, the reduction in VAT on electricity designed by the Government allows the effects in this area to be positive, despite the increases in electricity. In this regard, the Complutense Institute of Economic Analysis (ICAE) estimates that electricity has risen by 10.5% in interannual terms.

In a month-on-month comparison, the decrease in the rate was mainly supported by the energy component and food. Ángel Talavera, chief economist for Europe at Oxford Economics, recalls that fuel prices have become cheaper by around 2% compared to July, coinciding with an Operation Exit in which Traffic predicted more than 3 million road trips. While waiting for the INE to publish the confirmed data in the coming weeks, the ICAE estimates that diesel has fallen by 8.6% compared to August 2023 and gasoline by 7.1%. This scenario has made travel much more affordable for the millions of households that traveled in the middle of summer.

On the other hand, analysts remember that the service sector will have put upward pressure on the price index. The flood of tourists who have filled hotels, bars and beach bars have driven consumption and rates in the tourism sector to maximum levels. By July, domestic package tours had rebounded by almost 40%, domestic flights by 24% and hotels, hostels, guest houses and similar accommodation services by 26%.

 

https://elpais.com/economia/2024-08-29/frenazo-de-la-inflacion-en-agosto-los-precios-se-moderan-seis-decimas-hasta-el-22-y-acerca-el-final-de-la-crisis.html