The advance data of the CPI for May slipped yesterday into the news of the intense Spanish political news. Let it not go unnoticed: inflation affects the lives of citizens as much as the composition of the governments that emerge from the polls. According to the National Statistics Institute (INE), inflation fell nine tenths this month, to 3.2%, the lowest data since August 2021, especially for fuel and food. A piece of news that can be considered good news in principle, although it must be remembered that It does not mean that prices go down, but that they moderate their rise. In other words, prices continue on the upward path, but far from the 10.8% reached last July. If one takes as a reference the Underlying inflation –which is the one that does not take into account fresh food or energy, which have the most volatile prices and is therefore considered a more stable trend indicator– although it continues at a high 6.1%, the data is considered equally positive because chain three months down.
It should be borne in mind that the comparison is made with respect to prices that a year ago were already very high, so anything other than a moderation in inflation at this point would be very worrying. Especially after measures taken by the government after the energy crisis, such as the VAT reduction on certain products and taxes on electricity and gas or the reduction in the price of fuel for professional transport. Precisely, the next important decision of the Executive on inflation will have to do with whether to extend these measures beyond the June 30 deadline. A difficult and unpopular decision in the run-up to the electoral campaign, although the Government should assess whether, once the worst ghosts of inflation have been chased away, the measures of a more general nature – instead of concentrating public money on the homes most affected by the rise in prices – may do more harm than good in the long term. It was recently warned European Comissionwhen he recommended a fiscal adjustment to Spain and withdraw energy aid in 2024 to reduce the deficit and public debt.
Spain is one of the countries with the lowest inflation in the European Union, although it is still early to know the impact of the wage agreement reached at the beginning of May by unions and employers, which contemplates a salary increase of at least 10% until 2025. The pact is reasonable because it prevents workers from losing more purchasing power, but it will raise business costs and it will also be necessary to watch the possible second-round effects on inflation (as wages increase, the prices of goods and services increase more). For now, the Spanish economy is resisting the onslaught of the war in Ukraine, if we stick to the data on the evolution of employment, the CPI and GDP. But the uncertainty has not dissipated. Everything points to that The European Central Bank will maintain its policy of raising interest rates, to get closer to the objective of 2% inflation in the medium term. Which means that for a while loans will continue to become more expensive for citizens and companies, and that the cost of public debt will increase. This is not a time for triumphalism, but for prudent policies.