High energy and fuel prices are increasingly weighing on the pockets of Spanish households and threaten to weigh down the vigorous economic recovery after the pandemic crisis. This Thursday the National Institute of Statistics (INE) has published its advance of the Consumer Price Index (CPI) for the month of October, which reflects that the prices of the most common consumer goods and services for Spanish households have been more expensive 5.5% compared to the same month last year.
This figure is 1.5 percentage points higher than the September figure and represents the highest increase in consumer prices in year-on-year terms in almost thirty years. The last time inflation reached a higher level was in October 1992 when it rose to 5.8%.
Although the statistical institute has not yet published concrete figures on which products have become more expensive -something that it will do in the month of November- it has advanced that the main triggers of the rise in consumption are the increases in the price of electricity and less measured fuel and lubricants for personal vehicles, two items that in September already reflected an inflation of 44% and 21.2% respectively.
Broken piggy bank
Gas is also added to electricity and fuels , a product that did not appear among the main triggers of inflation in the advance of September. This may be a reflection of the significant increase in prices in the wholesale market that this good has experienced in the last month. In October, gas averaged 83.6 euros per megawatt hour (€ / Mwh) daily price, while in September the amount amounted, on average, to € 59.4 / Mwh, a difference of 41%.
In addition to the rising cost of energy products, another factor that partly explains the rise in inflation is the collapse in prices registered in October 2020 , a somewhat more pronounced fall than that of September. That month, the CPI was 0.8% below the level of the previous year, while in September 2020 the fall was 0.4%.
The energy crisis – which both the electricity and gas futures markets and most analysts suggest will last until at least the spring of 2022 – is beginning to affect other consumer goods more and more. Proof of this is that core inflation is already at 1.4%, a figure four tenths higher than that of September and which is unprecedented since July 2017.
Core inflation -which is calculated the same as the general CPI but discounting the prices of energy and unprocessed food- more accurately reflects the structural rise in consumption , since it excludes the most volatile components from the calculation.
A global problem
The rebound in energy costs has become a global problem that is affecting the global economic recovery . The shortage of gas reserves – a key source of energy in electricity generation – adds to other problems derived from the pandemic and the rebound in activity.
As the restrictions imposed by the coronavirus have been eased, global demand has exploded, but companies are encountering significant problems in meeting it. To the increase in costs caused by the energy crisis, we must also add the increase in cost and the scarcity of certain key raw materials such as semiconductors, some metals or paper, which is affecting industrial production.
On the other hand, transport prices are skyrocketing , in a context in which the interruptions that the coronavirus continues to produce in the normal operation of maritime transport and the shortage of truckers add more tension to the global supply chain.
This ‘perfect storm’ of difficulties on the supply side shows no signs of abating in the short term, putting the increasingly approaching Christmas season of high consumption at risk. In the case of Spain, the most recent macroeconomic projections suggest that this combination of factors is already affecting the recovery of the economy. Those published by Funcas on Wednesday anticipated that the national GDP would grow six tenths less than expected three months ago just because of these factors.
Although the weight of the industry in the Spanish economy is not as prominent as in other neighboring neighbors, the rising cost of consumption is not a trivial matter. According to the main analysts, the Spanish economic recovery for both this year and next will be driven mainly by domestic demand , which ultimately depends on household consumption.