29 Feb, 2024 @ 09:48
1 min read

Inflation falls below 3% mark in Spain due to lower electricity prices

Spain's annual inflation rate goes down to 7.3% in October
Imagen de Alexandra_Koch en Pixabay

LOWER energy prices played a big part in Spain’s provisional inflation rate for February dropping to 2.8%.

That’s a fall of 0.6% from January’s figure and is the lowest inflation number in six months, according to the National Institute of Statistics.(INE).

Besides falling electricity costs, the stability of food and non-alcoholic drinks contributed to February’s fall, says the INE.

Core inflation, which strips out volatile fresh food and energy prices, was 3.6% year-on-year, the INE data showed- down 0.2% from 3.6% in January.

The slowdown, predicted by analysts, is a consequence of the so-called step effect.

MarIa Jesus Fernandez, senior economist at Funcas, said that in February 2023 prices rose by 6% due to food, which was suffering its own crisis due to very high production costs.

At that time, food and non-alcoholic drinks soared by 16.6% year-on-year- the highest rate since 1994.

Since then, the direction changed with regular price falls, but the food inflation rate is still above 7%.

That figure does include the emergency VAT cut on basic foodstuffs, pasta and oils that was introduced in January 2023.

Beyond the shopping basket, the other major factor in the February inflation rate is energy, although its impact is lower compared to food.

“Electricity has evolved much better than we expected and the strong winds generated has contributed to creating more wind energy than expected, which has pushed prices down,” says Fernandez.

Also the price of natural gas and carbon dioxide (CO?) have plummeted.

Solar and wind energy generation will end February with record power generation, while hydro has also performed quite well due to recent rain.

These factors have allowed the price of wholesale electricity to fall as low as €10 per megawatt hour.

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