Spain: Inflation rate back in positive territory - ING

Geoffrey Minne, Economist at ING, notes that in September, the Spanish HICP rate exceeded the 0% threshold for the first time since June 2014 and between July and September, the inflation rate increased by 0.7ppt, a sign that ECB policy might be working after all

Key Quotes

“In September the HICP increased by 0.1% year on year and even if it does not come as a surprise, it remains positive news. The harmonized CPI went progressively from -1.2% YoY in April to -0.3% in August, and finally above 0% in September. In July Spain was still the Eurozone country with the second lowest inflation rate and the evolution since then is an encouraging signal. That said, it remains essentially dependent on the external context and not that much on an internal increase of wages for instance.

Even if we do not have the full details about which categories are driving this move, we can expect the energy prices to have played an important role. The two major categories dragging on Spanish inflation since 2014 were transport and housing. Both are decisively influenced by energy prices, be it by electricity prices or gasoline prices. A base effect came into play as oil prices increase year on year is not as low as it was in previous months.

That being said, nearly none of the sub categories of inflation exceed 1%. Knowing that the threshold of 2% remains an objective at the Eurozone level, the game is not over. We should see income growth to obtain some “good inflation” over the next year. In that regard ECB monetary policy is likely to remain easy for some time to come.”