The advance indicator of the CPI reached 3.2% in March for the country as a whole; if this estimate holds true, it will be four tenths higher than the figure recorded in February. In the previous month, inflation had already entered the 2% range, the ECB’s target, but has risen above 3% once again. The CEOE of Tenerife links these data to the impact of ongoing regulatory adjustments. The president of the business association, Pedro Alfonso, states that the increase in wages outside traditional productivity forms – mandated by the Ministry of Labour – and the rise in Social Security contributions are setting a notable upward trend, raising the possibility of a second wave of increases that could counteract efforts to reduce rates.
The underlying forecast, on the other hand, is slightly above the general rate in the third month of the year, at 3.3%. However, this is a decrease of two tenths compared to the previous recorded figure. The increase in the general rate is mainly due to rising electricity and fuel prices, which experienced a decline in March 2023. Conversely, prices of food and non-alcoholic beverages increased as well, but at a slower pace than in the same period last year.
The estimated annual variation rate of underlying inflation (general index excluding raw food and energy products) has decreased. Whereas there was a difference of over half a percentage point between them in the previous month, this month the gap is only a tenth. The CEOE of Tenerife highlights the significant fall in the underlying index. The business association suggests that these data point towards a moderation trend in the CPI across Europe and Spain, potentially paving the way for an expected interest rate reduction by the European Central Bank in June.
Forecasts
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If the forecasts materialize, inflation will see a slight increase, with a convergence of rates not seen for over a year, although still far from the ECB’s target (2%). 2024 began with an inflationary spike caused by the partial withdrawal of fiscal aids, followed by moderation in the second month due to the drop in electricity prices and stable food prices.
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From the business association, experts anticipate that the evolution of this underlying rate will continue on a downward path throughout the year, albeit slowly. The general rate, on the other hand, will be impacted by the “step” effects due to last year’s energy price volatility, as well as variations in the consumer basket, a trend that has already been observed in the first three months of the year: the same factors that pulled the rate down last month have had the opposite effect this month.
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