The increase in energy in March 2022 points to a cut in the CPI of up to two points
The sharp increase in energy prices registered in March of last year, the month immediately after the Russian invasion of Ukraine, will allow a notable relief in the annual rate of inflation this month, given that the rise in energy products and fuels and fuels will be much lower than what these CPI components recorded just a year ago. These became more expensive on average by 60.9 and 38.8%, respectively, and pushed the general rate up to 9.8%, its highest level since May 1985.
Sources consulted suggest that inflation could moderate up to two points this month just for that base effect. This will also begin to be noticed in the coming months in processed foods, which have been recording strong increases recently due to the gap that exists between the increase in the cost of producing them and the moment in which the increase is applied to their retail prices. It would not be, however, the only reason that this moderation in price rises would advance in the coming months, which is also predicted by the Ministry of Economic Affairs. The first vice president herself, Nadia Calviño, stressed this Sunday that in this first part of the year “great volatility in inflation rates can be expected”because it is being compared with the index of twelve months ago.
Reuters assured last week in an article that the members of the Governing Council of the European Central Bank (ECB) verified in their February meeting that a good part of the pressures on prices come from an increase in business margins and not from the rise in the salaries. This increase in margins is the opposite of what would be expected at a time when the costs of inputs are skyrocketing, although this type of inflation could be corrected relatively easily in a situation of strong uncertainty such as the current one in which the slowdown in the economy can negatively affect the activity of the companies themselves.
The underlying problem and tensions in the Eurozone
Most experts agree, however, that the moderation in the general CPI rate will continue to coexist, however, with tensions in underlying inflation, which excludes the most volatile elements (such as energy and unprocessed food) from its calculation. ) that are still far from being resolved. These pressures continue to show notable resistance to abate in Europe in general, reinforcing expectations of rises in official rates. The advanced inflation data for Germany, France and Spain so they show it.
The inflation rate for the euro zone as a whole barely eased in February to 8.5%, compared with the 8.6% registered in January. Although energy prices provided some relief for the third month in a row, food prices continued to rise. “The members of the ECB could toughen their tone in their next appearances,” Bankinter analysts warn. Looking ahead to the coming months, “we expect price tensions to begin to subside, especially in food, although we estimate that the drop in inflation rates will be very gradual,” says Javier Ibáñez de Aldecoa Fuster, an economist at CaixaBank Research.
Despite the fact that the issuer cannot directly influence food prices, it is precisely these that cause an increase in inflation perceived by consumers and “the ECB cannot ignore it”, they point out from the DWS manager. Her economist for Europe, Ulrike Kastens, does not foresee a real easing of the core rate this year, while companies will continue to pass on their higher costs to consumers. This means that the ECB still has a lot to do. Even after the March meeting, in his opinion, further sharp rate hikes can be expected to curb the inflation problem.
The fact that core inflation has accelerated and the broader composition of its drivers present a headache for an ECB that seemed eager to express its desire to slow its rate of hikes beyond March, according to María Marcos. , Monex Europe analyst. From her point of view, the implied probability of another 50 basis point rise in May has risen from 40% earlier in the week to around 66% today.