Spanish inflation plummets
Inflation in Spain has tumbled, as energy prices slide.
Consumer price inflation across Spain dropped to 3.3% in March, the lowest level since August 2021, down from 6.0% in February.
On a EU-harmonised basis, Spanish inflation dropped to 3.1%.
⚠️BREAKING:
*SPAIN MARCH CPI INFLATION RISES 3.3% Y/Y; EST. 3.8%; PREV. 6.0%
*LOWEST ANNUAL INCREASE SINCE JULY 2021
🇪🇸🇪🇸 pic.twitter.com/zl7IzjIJux
— Investing.com (@Investingcom) March 30, 2023
In contrast, inflation in the UK was recorded at 10.4% in February
Spain’s government had helped to cushion the rising cost of living by cutting the VAT rate on energy, and scrapping VAT on basic food items, such as bread, cheese and vegetables, and halving it to 5% on oil and pasta.
Spain’s National Statistics Institute said the drop was mainly because electricity and fuel prices decreased this month, having increased in March 2022.
But core inflation, which strips out volatile fresh food and energy prices, only fell slightly to 7.5% year-on-year, down from 7.6% in February.
Key events
Global shipping costs drop again
The cost of shipping goods around the world continues to fall, which should help push down inflation.
Drewry’s composite World Container Index shows that prices dropped by 2% this week, to $1,716.85 per 40ft container – which is 79% less than a year ago.
That means the cost of shipping a 40 foot container is now 83% below the peak of $10,377 reached in September 2021.
It is 36% lower than the 10-year average of $2,690, which Drewry says indicates “a return to more normal prices”. However, they’re still 21% higher than average pre-pandemic rates, of $1,420 in 2019.
Shipping prices surged during the pandemic, with prices pushed up by increased demand for consumer goods and disruption at ports. China’s reopening at the start of this year is helping to ease supply chain problems.
Primark lifts pay for 26,000 shop workers
Back in the UK, Primark workers are getting a pay rise that should help with the cost of living crisis.
Primark is to hand its roughly 26,000 retail assistants a pay rise from next week.
The high street giant is to increase the rates of pay for all its hourly paid store staff across England, Scotland and Wales to £11 an hour, with this rising to £11.51 in London.
The pay rise will represent a 12% increase against the same time last year, it said.
The increase will come into force on April 1, when the new national living wage of £10.42 an hour – which applies for all workers aged 23 – comes into effect.
Other UK retailers, including Aldi and Pret a Manger, have also been lifting wages in recent months.
Ireland’s inflation rate drops
Inflation across the Republic of Ireland has slowed this month too.
Ireland’s consumer price index is estimated to have increased by 7.0% in the 12 months to March 2023, on an EU-harmonised basis, the Central Statistics Office says, down from 8.1% in February.
Prices rose by 0.9% in March alone, the CSO says, with energy prices estimated to have decreased by 0.9% during the month.
Food prices, though, are estimated to have increased by 1.1% in the last month and jumped by 13.5% in the last 12 months.
Flash estimate for inflation in Ireland has it at 7.0% in March – down from 8.1% in Feb.
Prices rose 0.9% in the month.
Energy prices down in March by 0.9% – food was up 1.1%.
The harmonised index of consumer prices is slightly different to CPI to allow for Euro comparisons.
— Paul Colgan (@paulcolgan) March 30, 2023
The HICP excluding energy is estimated to have increased by 6.3% in the year to March.
Inflation has also dropped in parts of Germany this month, new official data shows.
In North Rhine-Westphalia, Germany’s most populous state, annual inflation eased to 6.9% in March from 8.5% a month earlier.
But the cost of living rose faster in Saxony, which includes Leipzig and Dresden. Saxony’s inflation rate dipped to 8.3% this month, down from 9.2% y/y in February.
Good Morning from Germany where inflation is developing totally differently from region to region. While inflation in North Rhine-Westphalia has fallen from 8.5% to 6.9%, in Saxony it is only down from 9.2% to 8.3%. Inflation spread between federal states now 1.4ppts up from 1ppt pic.twitter.com/LtXDi6PUY1
— Holger Zschaepitz (@Schuldensuehner) March 30, 2023
We get overall German inflation data at 1pm UK time. It’s expected to drop to 7.3%, from 8.7% in February.
Message us your views
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They’re not public comments – we are the only ones who will see your message, but I will monitor them and try to respond in the liveblog, or by email.
So you can let us know your views on inflation, the cost of living crisis, the state of the UK economy, the recent turmoil in the banking sector, or other business events in the news…
To try it, click the ‘Send us a message’ under my byline near the top of this blog. Thanks!
Spanish inflation rate nearly halves in March from 6% to 3.3% according to official flash estimate, as electricity and fuel prices fall, compared to rises last March… similar expected elsewhere in Europe incl UK in coming months. pic.twitter.com/F7HfNXK4pi
— Faisal Islam (@faisalislam) March 30, 2023
Spain’s stock market is rallying pretty strongly today, as traders cheer the drop in Spanish inflation this month.
The Spanish IBEX index has jumped by 1.6% this. morning, outperforming the rest of Europe (which continues to rally this morning).
Across Europe, Germany’s DAX and France’s CAC 40 have both gained around 1%, while the UK’s FTSE 100 is still at a two-week high (up 0.65% at 7,612).
Chris Beauchamp, chief market analyst at IG, says:
“Spain’s CPI is a welcome bit of news really, and seems to have provided markets with another reason for a rally.”
Back in the UK, British Airways has warned customers there could be delays over the next 10 days, due to strike action.
BA say they expect “some delays”, due to industrial action being taken by Heathrow Airport staff from 31 March to April 9.
The Unite union said this week that two groups of Heathrow security officers will strike from 31 March – 9 April. The airport will remain open and operational, though.
Falling inflation does not mean that prices are falling, of course, simply that they are rising less quickly.
As it’s now over a year since Russia’s invasion of Ukraine, we are starting to catch up with the surge in energy and food prices last year.
Alfonso Peccatiello, author and former head of fixed income portfolio management at ING Deutschland, points out that these ‘base effects’ mean inflation will appear to be ‘falling off a cliff’ – even if prices are actually settling at a higher plateau.
But core inflation may remain sticky, as BoE policymaker Catherine Mann warned last night (see opening post).
Base effects in YoY inflation prints will be strong now given commodity price action last year, giving the impression “inflation is falling off a cliff”.
Something to consider: will Central Banks use this narrative (even if core remains sticky) as cover to stop tightening?
— Alf (@MacroAlf) March 30, 2023
Spanish inflation falls: what the experts say
Neil Wilson of Markets.com warns that inflation has not been slain, despite Spain’s headline CPI index dropping to 3.3% from 6%.
He writes:
Is the dragon slayed? Well, not quite….we can see the headline rate collapsing due to the base effects of energy prices.
It’s less optimistic when you look at the stickiness of core inflation – underlying inflation fell marginally to 7.5%. And the yellow line here shows a clear upward trend.
Wouter Thierie, economist at ING, predicts headline inflation will cool further in the coming months, as energy prices drop. The significant decrease in agricultural commodity prices should feed through to food prices in the shops too.
Thierie writes:
Spanish inflation cooled in March, according to Spain’s statistics office INE. Headline inflation stood at 3.3% year-on-year, down from 6% in February. The HICP came in at 3.1% year-on-year, down from 6% in February.
The decline in headline inflation was mainly due to the fall in gas and electricity prices this month, after the sharp rise in the same month last year.
Also encouraging is that core inflation fell slightly to 7.5% from 7.6% in February, the first drop in 23 months. This shows that despite the sharp fall in headline inflation, inflationary pressures in the economy remain very high, but it is also a sign that the pass-through of higher energy prices into higher consumer prices is starting to lose strength. Moreover, pressures on global supply chains have further eased in recent months to pre-pandemic levels, which is also dampening inflation.
