Spain | Chronicle of an (un)announced inflation

The inflation woes currently afflicting us are well known by now, as are the causes, consequences and all the risks they entail. The response so far, while well-intentioned, has failed to solve the underlying problem and more forceful monetary policy action is almost inevitable as we move forward.

Key points

• Key points:
• Until the end of last year we seemed to be heading in the right direction in tackling inflation domestically. Thus, while average producer prices grew by 35.2% year on year (% y/y), core inflation (which excludes the more volatile components such as energy and unprocessed food) stood at 2.1% y/y and headline inflation at 6.5% y/y.
• The current situation is more worrying because while headline inflation fell by 1.5 pp to 8.3% y/y in April, core inflation increased by 1.0 pp to reach 4.4% y/y. Moreover, 80% of the consumer basket shows inflation rates above 2%, while 78% of prices are now accelerating when compared with the last three months.
• Given this situation, there are reasonable doubts regarding the medium and long-term effectiveness of the economic policy measures put in place in Spain to ease energy inflation pressure in the short term.
• BBVA Research estimates suggest that the gas price cap will lower the level of electricity prices by between 27% and 37% from June onwards, which will push down the consumer price level by between 0.6 pp and 0.8 pp. A more meaningful impact could be achieved by changing supply and demand conditions in the commodity markets (e.g. oil or gas prices).

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