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Saturday, September 30, 2023

slows the decline in inflation and threatens growth in 2024

At this time last year, European governments were rushing to buy gas in the markets to fill their reserves and be able to overcome the first winter with the Russian tap closed. The fear of a shortage – which in the end did not occur – led many to invoke the specter of recession, which would not arrive either. The eurozone faces the cold season this year with more confidence: the price of gas is now five times lower than at this point in 2022 and gas reserves are full. However, although the worst fears did not materialize, The energy crisis has not disappeared from the Old Continent. Although this time it is Petroleum —and not the gas– the protagonist.

The significant rise in the price of crude oil during the summer has interrupted the process of lowering inflation which began, precisely, in the summer of 2022. He Brent barrel It already costs 28% more than at the end of June and the expectation is that the price will continue to rise in the coming months. Spanish drivers and transporters already notice it. In that same period, 95 gasoline has become more expensive by 9% and diesel has risen by almost 15%. In addition, the price of natural gas futures contracts in Europe has also increased, although to a lesser extent.

These two elements, together with the expected disappearance of energy support measures in 2024 and the so-called statistical ‘base effect’, make the Bank of Spain think that Consumer prices will accelerate again until mid-2024. Consequently, the banking supervisor has revised upwards its inflation forecasts for 2023 and 2024 to 3.6% this year (three tenths more than before the summer) and still 4.3% next year (seven tenths more). Nevertheless, the expected rebound will be much milder than the one seen between March 2021 and July of last year.

If there is no government to prevent it, Spaniards will start 2024 paying a noticeably larger electricity and gas bill that with which they end 2023. Both the tax reductions on the electricity bill, whose taxation is practically at the legal minimum, and the Iberian exception decline in December of this year. This will cause a sharp and almost instantaneous increase in the electricity and gas bills of homes and businesses already in January.

Furthermore, it must be taken into account that the most common metric to measure inflation—comparing the prices of one month and its equivalent the previous year—makes the data highly conditioned by the past. This is what is known as ‘base effect’ or ‘step effect’. In the case of energy, prices began to reduce significantly from September 2022 and continued to do so until May of this year. Consequently, In the coming months, energy inflation will rise, not only due to the effect of the rise in oil, but because comparisons will be made with increasingly lower prices. and, therefore, they will be more unfavorable.

less growth

The escalation of inflation that could be caused by the increase in energy prices It will also condition economic growth during 2024. The Bank of Spain has revised downwards its GDP growth forecast for next year by four tenths (from 2.2 to 1.8%). Among the factors that explain this revision are also the expected increases in the price of energy, which adds to the effect of the strong increases in interest rates and the weakness of the economies of the European partners.

The evolution of energy prices in the future will be decisive in the speed of GDP growth. The main driver of growth in the coming years will be, according to the Bank of Spain, private consumption, a variable that will depend on the speed at which inflation is reduced. A good part of consumer expectations are based on workers being able to recover some of the purchasing power lost during the crisis and for this to happen, the slowdown in prices is crucial.

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