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Published on Monday, February 22, 2021

Spain | Inflation: data confirms perceptions

A few days ago, inflation data for January was published, which marked a turning point from the falls in 2020. Many citizens might only have noticed the recent price rises. But the change in the market basket is the key.

Key points

  • Key points:
  • In a context of growing activity and employment, with no major upheavals, as in the lead up to the global pandemic, the January figures would not have been particularly striking. But figures were noteworthy because inflation returned after nine months of falling prices, resulting in an average annual decline of -0.3% in 2020 (-0.5% at the end of the period).
  • If you asked an ordinary consumer how they felt about the gain in purchasing power resulting from this fall in prices, they might say that they were barely aware of it in 2020, but that what they have noticed is the rise in prices at the start of 2021.
  • The key is the upheaval of the market basket, caused by the general economic downturn, fear of infection, and specific restrictions on movement and activity in sectors particularly dependent on social interaction.
  • For example, there has been a decline in demand for fuels and services linked to transport, leisure, hospitality and tourism, whilst demand for food has increased. As a result, the price of the former declined and the price of the latter rebounded.
  • It wasn't until the beginning of 2021 that the INE incorporated the changes into the weightings of the CPI calculation. However, BBVA Research estimates indicate that, if the change in weights were attributed to the start of the pandemic in March, last year's average inflation would not have been negative — it would have been zero.

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