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Date Published: 29/08/2022

ARCHIVED - The end of inflation or the beginning of a recession?

ARCHIVED ARTICLE

Many vital consumer products in Spain have already experienced a price drop

<span style='color:#780948'>ARCHIVED</span> - The end of inflation or the beginning of a recession?

Europe is enduring the worst inflationary crisis in four decades but the end could well be in sight, at least for Spain. The prices of key consumer products like fuel and cereals, which reached all-time highs following the Ukraine invasion, are finally showing signs of relief, but it’s a painfully slow process.

Drivers should certainly be noticing a difference at the pumps this month, where petrol has dropped 11% and diesel 8% compared to July, and with other items following suit, the experts believe that the Consumer Price Index (CPI), which has reached a staggering 10.8%, should fall to around 8% in the coming weeks.

“Commodities, crude oil… everything is going down. Much of what has generated inflation since the fall of last year is disappearing and is even going to cause deflation: the prices of these products are going to be below what they were a year ago,” predicts Manuel Hidalgo, professor of economics.

"If we're not at the top, I think we're already seeing the end of the climb," he added.

However, not all products are flat-lining and gas prices have been rising non-stop since June, reaching record highs in recent days. In Spain, this energy product is still 63% more expensive than it was before Russia invaded Ukraine and with colder months ahead, a cost break is highly unlikely.

High gas prices naturally hike up the cost of electricity but the so-called Iberian exception, which allowed Spain and Portugal to introduce price caps, has certainly cushioned the blow for consumers. In reality, without this limit, August electricity bills would have been 23.8% more expensive.

The possibility that one of the worst financial crises to hit Spain since the 70s is coming to an end is certainly welcome news, but there is a dangerous flip side: recession. Many experts feel that the drop in prices of raw materials like fuel and grains points to the fact that global demand is slowing down, which itself could indicate an imminent collapse of the world economy.

The World Trade Organisation has already conceded that world trade has slowed down in the second quarter and more and more analysts are predicting that the euro zone could enter a recession in the second half of the year.

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