Spain closes the year with the lowest inflation in the Eurozone due to the cap on gas

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In the midst of the energy crisis and food prices, Spain says goodbye to the year with the lowest inflation in the Eurozone, 5.5% according to the harmonized CPI rate published this Wednesday and that Eurostat takes as a reference to make its comparison between countries. The CPI moderates thanks, among other measures, to the effect of what is known as the gas cap and the other measures in the energy field. December is the second consecutive month in which the country is at the tail end of the inflationary spiral that is plaguing the region and which will de facto mean that the European Central Bank (ECB) maintains interest rate hikes for the time being to face it.

In the last month of the year, life became more expensive on average by 9.2% among the countries that share a currency, in line with the forecast that the Community Statistics Office had published just a few weeks ago. (never before has inflation dropped so much in a single month, since in November it had reached 10.1%). This increase occurs despite the fact that the entity has already set rates at 2.5%, the highest since 2008, due to the lag that exists between 18 months and two years in the transfer of monetary policy decisions to the economy real.

The positive part is that the rise in prices in the euro area is moderating for the second consecutive month from the ceiling that was set in October at 10.6%, a level unheard of since the creation of the currency. In the whole of the European Union to Twenty-seven inflation stood at 10.4% last month in annual rate, compared to 11.1% registered in November.

Food price escalation intensifies

The effects of the war in Ukraine and the price tensions than energy It has been registering since the summer of 2021, they maintain this rubric as the one that exerts the most pressure by far, with a year-on-year rise of 25.5% (it is seven points lower than what it marked in November). Indeed, the Commissioner for the Economy, Paolo Gentiloni, sees a greater competitive disadvantage for the European industry in the rise in energy prices than in the new US Inflation Reduction Act (IRA), endowed with 369,000 million dollars in subsidies to boost investment in the United States – and which threatens to provoke a wave of relocations to the country-.

“The competitive disadvantage of our sector lies in energy prices, while the IRA adds to this,” said the commissioner during his speech at a panel within the framework of the World Economic Forum, which is being held in Davos ( Switzerland) and in which he has participated together with other economists and journalists. Along with the energy food, alcohol and tobacco became more expensive on average by 13.8% in the Eurozone, two tenths more than the previous month and represent another of the main headaches for governments in the area.

The prices of non-energy industrial goods also rose more strongly (6.4% compared to 6.1% in November) and those of services (they increased to 4.4% two tenths more than the previous month) . Core inflation, which excludes the most volatile elements from its calculation, increased two tenths more than the previous month, 5.2%.

Of the twenty countries that share the euro after the incorporation this year of Croatia, Luxembourg (6.2%) and France (6.7%) registered the least intense price rises, only behind Spain. The situation is quite different in Hungary (25%), Latvia (20.7%) and Lithuania (20%), countries with a greater economic and energy dependence on Russia.

The Eurozone will take time to break inflation

In the update of its macroeconomic projections for December, the entity headed by Christine Lagarde already warned that the rise in prices would take time to reverse, since it considered that inflation would remain on average next year at 6.3% (compared to rise of 5.5% that he anticipated in his previous forecast). Core inflation would stand, on average, at 4.2%. This strong increase in the cost of living will coexist with a stagnant economy, given that according to the issuer, the GDP of the group of countries that pay in euros will barely rise to 0.3% this year in a context marked by uncertainty.

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