Inflation rises one tenth in January to 5.8% and core inflation scales to 7.5%

Inflation opens the year 2023 with a rate of 5.8% after the rate of 5.7% of last December, which was in turn 1.1 points lower than that of the previous month, according to the Advance Indicator of the Consumer Price Index (CPI) for January published today by the National Institute of Statistics (INE), which will not be confirmed until the middle of next month.

After the withdrawal of the bonus to the price of fuels and despite the drop in VAT on some foods, the CPI, the main indicator of the evolution of inflation, is at a minimum of almost two years and more than five points with respect to the maximum of the 10.8% in July, mainly due to the drop in energy and fuel, but with the shopping basket at all-time highs.

The rise of one tenth this month is mainly attributed to the fact that fuel prices have risen more than in January 2022, and to the fact that the decrease in the prices of clothing and footwear in the January sales is less than in the year past. On the contrary, electricity prices fall to a greater extent compared to January 2022, says the INE.

The annual rate of the leading indicator of subjacent inflation (general index without unprocessed food and energy products) increases five tenths, up to 7.5%, a more precise indicator of the structural situation of the economy that worries experts due to the second round effects that the upward trend of the indicator could have, such as the tightening of monetary policy.

For its part, the annual rate of the leading indicator of the IPCA, a common measure of inflation that allows international comparisons to be made, is also 5.8%, three tenths more than the rate registered in December.

Consumer prices have fallen three tenths in one month (-0.3% compared to December), while the month-on-month rate of the HICP falls five tenths (-0.5%).

A year ago, in January 2022, the CPI was at 6.1%, a rate that shot up to 9.8% in March after the start of the war in Ukraine. After being slightly contained for the following two months, it climbed above 10% in the summer months, with its maximum peak in July (10.8%), its highest level since September 1984. In the ninth month of the year, it was able to drop below two digits and since then it has moderated downwards after lowering the price of energy and gasoline.

However, despite the drop in the general CPI, food prices have continued to rise with average increases of 15% and some groups above 18%, a rise against which the Government promoted a package of measures at the end of the year with the objective of containing prices, such as the drop in VAT on basic foods or the creation of a food check for vulnerable families.

The first vice president, Nadia Calviño, has assured today in statements to the media that, although the different components are not detailed in the advance data of the CPI for January, the information from the Government indicates that the reduction of VAT on some foods to 0 % is already being transferred to prices and considers that the CPI has "stabilized" despite the elimination of some aid, such as the fuel discount (...). The advance inflation data for January is good news," summarized Calviño, who expects the underlying rate to "reach its peak" in the first quarter.

The CPI of January 2023 uses, for the first time, weights from the National Accounts and incorporates the free gas and electricity markets, a statistical change in the INE that had been working for more than a year because it has required an adaptation process of the information collected. Every year the weight or importance of the CPI components is updated and every five years the complete structure is updated for all levels of disaggregation.

As explained by the INE, as of 2023 the main source used to update the weights has become the national accounting instead of the household budget survey (EPF).

The structure of the weights has also been modified to adapt it to European regulations, so that the weight of the food and alcoholic beverages group decreases by three points, and the weight of the housing group in the basket of goods also decreases by one and a half points. the purchase (the expenses associated with the home, not the price of the home itself, whose main component is the electricity bill). On the other hand, transport increased 0.8 points and hotels, cafes and restaurants increased 0.2 points.

The rates considered up to now for the calculation of the price indicator referred exclusively to the regulated market, but with the change to the free market of an increasing number of households "it was considered necessary to incorporate the free market to adequately represent the evolution of prices of the sector", explains the INE.

"This expansion of coverage could not be undertaken in 2022 because the information was not available with a sufficient level of detail, nor with the necessary technical criteria that would allow the application of a methodology consistent with the requirements demanded in the calculation of the CPI" .

"Throughout 2022, the main distribution companies have adapted their information processing systems to respond to the methodological requirements of the CPI and to be able to incorporate free market prices with full guarantees," the agency continues.

A third change has to do with the procedure used to carry out the survey, since throughout 2023 the sectors in which prices are collected through electronic devices will be expanded to simplify the data collection process.