• Rising energy prices and their impact on the manufacturing industry: which sectors are being hit the hardest?

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    The increase in energy prices throughout 2021 as a result of the combination of the sharp rise in global energy demand (due to the reactivation of the economic cycle) and a certain weakness in supply (due to geopolitical problems and the change in the energy model towards non-fossil fuels) has led to a global energy shock. In 2022, the geopolitical context is putting extra pressure on international gas and oil prices, which could aggravate the already significant impact of the energy bill on Spanish industry. This article examines the specific impact of rising energy prices on manufacturing, analysing which sub-sectors are being most affected and to what extent they are exposed to more sustained pressure on energy prices.

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    Manufacturing, a major consumer of energy

    First, we must determine how the different sectors and agents in Spain’s economy consume energy. A survey of physical energy flows provides useful information on energy consumption, disaggregated by energy type and sector of activity. In this case, we have analysed the consumption of electricity, natural gas and oil, the three products whose prices are currently experiencing the largest hikes.7 As can be seen in the charts below, manufacturing industry as a whole is a major consumer of energy from these three sources, accounting for slightly more than half of the total energy consumed, well ahead of energy suppliers, which account for 64% of the natural gas consumed in Spain to generate electricity, and households, consumers of 26% of the electricity. Other very important sectors for the Spanish economy, such as hospitality services which are closely related to the key sector such as tourism, and the transport of goods, a major consumer of oil products, come a distant second in terms of energy consumption. We can therefore deduce that industry’s energy consumption is indeed very high and energy prices are therefore key to its performance.

    • 7. According to Spain’s industrial price index (INE) for February 2022, the supply price for gas grew by 99% year-on-year, that of oil refining products by 59% and electricity by 62%.

    Energy consumption of oil, gas and electricity by businesses and households

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    Manufacturing industry consumption by energy type

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    Consumption of the three types of energy source (oil, gas and electricity) is not homogeneous across the sector. For example, within the total oil consumed by manufacturing industry, 95% is consumed by the oil refining industry itself, which uses this energy source mainly as an input to produce oil derivatives (two thirds of its consumption is crude oil). Such idiosyncrasies do not occur in the rest of the manufacturing sectors, so the exposure of each sector to the prices of the three utilities is very different. This is shown by the chart below, where great variability can be seen in the type of energy products consumed by each industry, although there is a larger number of industries that consume more electricity. There are also some industries with a higher consumption of other types of energy products, such as the plastics industry which consumes a relatively large amount of thermal energy, and the cases of the furniture, wood and paper industries, which consume wood for energy purposes (i.e. the burning of wood waste), as well as for production.

    Great variability can be seen in the type of energy products consumed by each industry, although there is a larger number of industries that consume more.

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    Source: CaixaBank Research, based on data from the National Statistics Institute.
    Rising energy prices are putting pressure on production prices

    The intensive use of energy products has left the manufacturing industry highly exposed to the current energy shock. One of the main effects of this shock has been some sub-sectors passing on higher energy costs to their industrial production prices, showing a certain capacity to raise the prices of their products. Spain’s Industrial Price Index (IPRI), which is compiled monthly by the National Statistics Institute, recorded a 10% rise in 2021 in manufacturing industry prices, the highest since 1985. Moreover, the year-on-year rates showed a clear upward trend throughout the year, in line with the intensification of the energy shock in recent months, ending December with 15.5% growth. It should be noted that this upturn in industrial prices is occurring on a global scale, so it has not translated into a worrying or significant loss of international competitiveness on the part of Spanish industry.

    The oil refining, metallurgical and chemical industries have seen the largest increase in their product prices.

    However, to fully understand the impact of the energy shock on each industry, it is not enough to know what types of energy they consume; we must also analyse the relative weight of energy consumption within their cost structure. For this purpose, we have used the input-output tables prepared by Spain’s National Statistics Institute (INE) to calculate what proportion of each industry’s revenue is used to pay for intermediate energy consumption, broken down by industrial branch.8  

    • 8. The INE input-output tables correspond to 2018. This analysis takes the following products into account: Coke and refined petroleum products, Consumption of electricity, steam and air conditioning, and Consumption of manufactured gas.
    The auxiliary sector to construction, metallurgical, paper and refining industries are the biggest consumers of energy

    The results of this analysis indicate that expenditure on energy inputs accounts for 4.1% of total manufacturing industry revenues (output at sales price). A priori, this figure would not reveal whether energy is a production factor that uses too large a share of the sector’s resources. However, there are five industrial branches (chemicals, metallurgy, oil, paper and the auxiliary sector to construction) that are relatively energy-dependent, ranging from 7.2% (chemicals) to 13.6% (auxiliary sector to construction). These more exposed industries were under more pressure to increase the sale price of their products given the rise in energy prices experienced in 2021. This can be seen in the scatter chart where, if we exclude the case of the auxiliary sector to construction, the correlation between the increase in industrial prices and the relative weight of energy consumption have a very clear positive correlation. In the specific case of the auxiliary sector to construction (manufacturers of cement and other non-metallic minerals), their greater exposure to energy has not been passed on to prices due to the fact that a large part of the sector’s sales were made at prices agreed at the beginning of 2021, although by 2022 we should start to see their sale prices rise.

    Share of energy consumption

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    Source: CaixaBank Research, based on data from the National Statistics Institute.

    Although this analysis is very illustrative, given the situation we are experiencing in 2022 with the war in Ukraine putting pressure on energy prices, we must necessarily go a step further and determine the pressure that could be felt by each industrial sector to raise its prices, seeking to safeguard their margins but sacrificing part of their demand. We have therefore also analysed the sensitivity of the sector’s economic performance to an increase in the supply price of gas, electricity and oil in Spain. Consequently, we are no longer only considering the relative weight of energy in the factors of production but also its share the total cost structure, including employee remuneration. To do so, we have cross-referenced the energy consumption exposure calculated from the input-output tables above with the national accounting data for each industry available for the year 2019. This allows us to analyse how the gross operating surplus (GOS) of each industry would vary in a scenario of increased costs due to higher energy prices, in the hypothetical case they do not adjust their sale prices.9 Specifically, for this exercise we assume an annual increase in energy prices of 50% for gas, oil and electricity, similar to what was observed in 2021.10  

    • 9. Gross operating surplus is equal to production at market price minus the total cost of intermediate consumption, employee remuneration and net tax payments. It can be assumed to be an estimate of the sector’s profits.
    • 10. At the close of 2021, the increase in energy prices in Spain was 60% for oil (Brent) and 47% and 53% for the sale price of gas and electricity, respectively.

    Sensitivity of the gross operating surplus

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    According to our results, under the energy price increase scenario we have defined, the manufacturing industry’s GOS would fall by 17% if prices were not adjusted to sale prices, revealing that the industry is obviously under pressure from electricity, gas and oil prices in terms of its margins and therefore its sale prices. As can be seen in the chart above, the sectors identified previously as being most exposed to energy prices are also experiencing significant pressure on their GOS. In this case, the most prominent case is the oil refining industry which, if it did not pass on the shock to its sale prices, would see its margins become negative (a drop of more than 100% in its EBITDA), indicating the industry’s need to adjust prices as much as possible to the changes in gas and oil prices, something which, on the other hand, it is able to do thanks to the low elasticity of its demand. One of the key findings of this analysis is that, in addition to the average impact being high, in just one third of the industries are their profits only moderately sensitive to higher energy prices, with pharmaceuticals being the least exposed to energy costs.

    In just one third of the industrial sectors are their profits only moderately sensitive to higher energy prices.

    On balance, it seems clear that manufacturing is considerably exposed to increases in energy prices. According to our analysis, the metallurgical, chemical and refining industries (12% of manufacturing production in Spain) are highly exposed to the energy shock. Moreover, these are also the industries that are most likely to pass on the current rise in energy bills to their sale prices, taking advantage of the fact that their demand is relatively inelastic over the short and medium term.

    On the other hand, there are a number of industries where the increase in the cost of energy products is having a major impact on their profits but these have not yet passed on their higher costs to their prices, although we expect them to do so during the course of this year. These would be sectors such as the auxiliary sector to construction (in fact, this is a frequent demand by the sector), the wood industry and paper industry. Such sectors account for between 20% and 25% of all manufacturing activity.

    At the opposite end of the scale are those industries whose energy consumption appears to be somewhat lower, such as the manufacture of electronic and computer products, pharmaceuticals and textiles, among others. In this case, pressures on energy prices should not have a direct impact on their sale prices, although there is likely to be some kind of knock-on effect due to price hikes for other industrial intermediate products coming from industries more affected by energy prices.

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  • The agrifood sector is suffering the consequences of the war in Ukraine

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    Spain’s agrifood sector is also being severely affected by the consequences of the conflict, both by rising prices for energy and agricultural commodities and also because there is a risk of shortages occurring among these inputs that are so essential for agrifood production

     

     

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    • Russia and Ukraine are among the world’s leading producers of agricultural commodities. Both countries are the largest global exporters of cereals (wheat, corn and barley), vegetable oils (sunflower oil) and fertilisers (in the case of Russia). It is therefore not surprising that Russia’s invasion of Ukraine has had a very significant effect on international markets for these commodities, triggering much concern about the risk of a global food crisis.
    • Spain’s agrifood sector is also being severely affected by the consequences of the conflict, both by rising prices for energy and agricultural commodities and also because there is a risk of shortages occurring among these inputs that are so essential for agrifood production. On balance, Spanish agriculture does not seem to be imminently at risk of shortages; the main impact is due to the sharp rise in production costs, already clearly affecting activity in the primary sector (whose gross value added fell by 2.6% year-on-year in the first half of 2022). In contrast, production in the agrifood industry is performing relatively well for the time being.
    • However, rising production costs are affecting all the links in the food chain (production, processing, distribution and transport) and are being passed on to the food prices paid by end consumers, pushing up spending on food, especially among lower-income households. The most positive aspect continues to be the trend in agrifood exports, which are still growing strongly in 2022. Moreover, competitiveness indicators do not seem to have worsened despite the price hikes. It is also important to note that the war in Ukraine has once again demonstrated that the food supply chain is able to respond admirably in order to secure food supplies in times of crisis.
    • The sector’s short-term outlook is conditioned by uncertainties stemming from the war in Ukraine, inflationary pressures and weather conditions (drought). However, more recent developments (agreements to release some of the grain currently retained in the Black Sea and good harvests in other producing countries) have reduced the risks of a global food crisis and should help to curb pressures on retail food prices. On the other hand, the latest surge in energy prices, especially gas, will act as a counterweight.
    • In this Report, we focus on the citrus fruit sector, one of the most important in Spain’s agrifood system and a leading player in international export markets. This traditionally atomised sector, with the consequent difficulties in terms of modernisation, needs to tackle some important challenges. In particular, it faces strong competition from third countries at a time of sharply rising production costs, accentuated by the prolonged drought and the war in Ukraine. In any case, according to the international trade figures, Spain’s citrus agriculture continues to be the most competitive in the world.
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  • The war in Ukraine is affecting trends in the agrifood sector

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    Rising production costs as a result of the war in Ukraine are affecting all the links in the food chain: production, processing, distribution and transport, although the primary sector has been particularly hard hit, also adversely affected by unfavourable weather conditions in the form of drought. Rising costs are being passed on to the food prices paid by end consumers, pushing up spending on food, particularly among lower-income households. The most positive note comes from the external sector: agrifood exports have continued to grow strongly in 2022 and competitiveness indicators do not seem to have worsened in spite of the price hikes.

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    The primary sector is suffering from an unfavourable environment for agriculture

    The first half of 2022 produced poor figures for Spain’s primary sector: gross value added (GVA) fell sharply (–2.6% year-on-year in real terms) due to adverse weather conditions (drought) and the sharp rise in production costs (energy, fertilisers and animal feed). This performance contrasts with that of the Spanish economy as a whole, which saw very strong growth during the first half of the year (6.3% year-on-year), thanks to the boost from private consumption and international tourism, both helped by the end of restrictions associated with the pandemic. As a result, the primary sector has lost share in the economy, falling from 2.8% of total GVA in 2021 to 2.1% in Q2 2022.

    The primary sector has lost share in the economy, falling from 2.8% of total GVA in 2021 to 2.1% in Q2 2022

    The primary sector is losing share in the economy

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    Share of the primary sector

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    In fact, a lack of rain has led to prolonged drought in much of Spain: water reserves were at 39% of their capacity at the beginning of August (the lowest since 1995) while surface soil moisture levels were also low in most of the country.1 These conditions have reduced crop yields, such as cereals whose volume fell by 5.8% in the 2021-2022 season, representing 4.1 tonnes per hectare on average compared with 4.3 tonnes per hectare the previous season, according to estimates by Spain’s Ministry of Agriculture, Fisheries and Food.2

    • 1. Although the prolonged drought improved significantly in March following heavy rains, May and June were again very dry. See the «Boletín mensual de estadística» from Spain’s Ministry of Agriculture, Fisheries and Food (July 2022).
    • 2. «Evolución de los balances de cereales en España, Campañas 2020/2021 y 2021/2022», Ministry of Agriculture, Fisheries and Food (July 2022).

    The outlook for the agrifood sector remains highly dependent on developments in the war in Ukraine and the energy crisis

    In addition, the war in Ukraine has pushed up input prices for the primary sector, a trend that had already started in 2021 but has intensified since the outbreak of the conflict. Specifically, primary sector production costs soared by 33% year-on-year in the first four months of the year, having already risen by 13% in 2021. Apart from the sharp rise in energy costs (88% year-on-year between January and April 2022), there has also been a significant increase in the price of fertilisers (94%), an input of which Spain is a net importer. However, the component contributing the most to the primary sector’s rising costs (see the table below) is feed, due to its large share in the overall cost structure, namely 53.8% of the total in 2021. Spain also imports approximately half the cereal destined for animal feed, a percentage that rises to 82% in the case of corn (which comes mainly from Ukraine),3 so Spanish farming is suffering from the fluctuations in cereal prices on international markets, an aspect we analyse in more detail in the next article of this Report.

    Nevertheless, it is important to note that the prices of the main agricultural commodities quoted on international markets have fallen recently from the record highs seen in the first few weeks of the war, with futures markets pointing to a somewhat more stable trend at levels similar to those prior to the outbreak of the war. We can therefore be cautiously optimistic about the outlook for the trend in costs borne by the sector.

    • 3. 39% of Spain’s corn imports came from Ukraine in 2020.
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    The government has approved various support measures to help the sector cope with rising production costs. In March, the first action plan to deal with the situation resulting from the war in Ukraine included 430 million euros for the sector, while a further 72 million euros were included in June’s decree extending these action plans.4 The sector is also starting to benefit from projects financed by the NGEU funds (e.g. the second tranche of disbursements to modernise irrigation has been launched). Moreover, the Strategic Project for Recovery and Economic Transformation (PERTE in Spanish) for the agrifood sector is now being implemented, with a budget that has been increased to 1.8 billion euros. This focuses on three priority areas: transforming the industrial value chain, digitalising the sector and boosting scientific research.

    • 4. Measures have also been approved to tackle the drought, amounting to around 450 million euros. See the Spanish government’s press release «Rendición de cuentas en el primer semestre del año».
    Production in the agrifood industry is resilient

    The food industry saw an upward trend in the first part of 2022, with industrial production growing by 3.4% (cumulative year-on-year change between January and June, in real terms) and turnover by 17.7% (nominal value). Beverage production recovered rapidly in 2021, thanks to the post-pandemic reopening of the hospitality channel (hotels, restaurants and cafeterias), a positive trend that has continued in 2022. The rise in producer prices is also less severe for beverage production than for the food industry. Specifically, the producer price index for beverage production increased by 3.8% year-on-year in the cumulative period between January and June 2022, compared with a rise of 14.3% in the food industry and a significant increase of 21.1% for manufacturing as a whole. Particularly relevant in the food industry were the higher producer prices for milled products (32.0%), animal feed (28.8%) and oils and fats (27.6%), these being more directly affected by the global rise in the price of cereals and vegetable oils.

    The agrifood industry has recovered from the impact of the pandemic and its trend is positive, for the moment

    Agrifood industry: production and prices on the rise

    Industrial production

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    Industrial price index

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    Employment reflects the dynamics of activity in each sector: more favourable in the food industry and less so in the primary sector

    The agrifood industry’s labour market saw a favourable trend thanks to the good performance by the food and beverage production branches: the number of workers registered with Social Security rose to 462,000 in July, around 15,000 more than a year ago. In contrast, registered workers in the primary sector fell by 3.4% year-on-year in July 2022 with 37,000 fewer than a year ago, in keeping with the greater difficulties faced by the sector. One very positive aspect is the reduction in the temporary employment rate: in Q2 2022, 45.3% of agricultural employees were on a temporary contract, 8.3 pp less than a year earlier, as a result of the labour reform that came into force in March. However, it is still too early to make a complete assessment of the reform’s impact on a sector that is so seasonal in nature.

    Primary sector registered workers

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    Agrifood industry registered workers

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    Spending on food is rising due to higher prices

    Rising costs in all links of the food chain, including transport and distribution, have been passed on to the food prices paid by the end consumer. In July, the CPI for food rose by 12.4% year-on-year (11.9% for processed food and 13.4% for unprocessed food), contributing 3.3 pp to general inflation (10.8% in July). Nevertheless, it is important to remember that the shock causing this rise is external, exogenous and shared by the countries around us. It is also occurring in the euro area as a whole (+9.8% year-on-year in July)  and to a greater or lesser extent in the different countries (+11.5% in Germany, +12.2% in Portugal, +8.6% in Italy and +6.0% in France). The outlook is for food inflation to remain high for a few more months, given the time lag with which price shocks are usually passed down the food chain. However, in the absence of further shocks, inflationary pressures are expected to ease thanks to the recent containment of agricultural commodity prices on international markets and transport costs (linked to oil prices). The next article in this Sector Report discusses this issue in more detail.

    Spain: general CPI and food

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    Food CPI

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    Rising food prices are affecting the amount of food consumed by households. According to the retail sales index produced by Spain’s Statistics Institute, food sales grew by 6.2% year-on-year in the first half of 2022 at current prices (i.e. nominal expenditure on food has increased) but fell by 1.4% at constant prices (i.e. the quantity consumed has altered). The indicator of CaixaBank Research’s Consumption Monitor, based on card payments in supermarkets and food establishments (nominal expenditure), shows that between the end of February and the beginning of March there was an increase in stockpiling purchases due to fears of possible shortages. Since then, and up to July, food expenditure would have grown by 11.6% year-on-year on average compared to an increase of 4.6% year-on-year in January and February, before the outbreak of the war.

    Spending via Spanish cards in supermarkets and large food stores has increased after the outbreak of the war in Ukraine

    CaixaBank’s internal data enable us to analyse the trend in food expenditure according to household income level. The following chart shows that low-income households have increased their spending on food the most in the past few months, a result that could be explained by the fact that, in the foods that make up the typical shopping basket for low-income households, a larger proportion have undergone more significant price increases.

    Actually, one would expect that food consumption both inside and outside the home would readjust and that retail purchases would increase to offset lower expenditure on hospitality. For the time being, however, and in general terms, spending on hospitality continues to perform very well in nominal terms (+59% in July compared with the same month in 2019)5 thanks to the excellent tourist season, although these figures could moderate over the coming months.

    • 5. These figures, in nominal terms, are affected by card payments replacing cash payments.

    Card expenditure on food by household income

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    Spanish agrifood exports continue to grow, supported by the sector’s high competitiveness

    So far this year, Spanish agrifood exports have continued to perform excellently, posting growth of 14.1% year-on-year in the cumulative period from January to June 2022, totalling 61,223 million euros (cumulative over 12 months). For their part, agrifood imports accelerated their rate of growth (30.2% year-on-year between January and June), bringing the external surplus of agrifood goods to 1.2% of GDP (compared with 1.5% in 2021).

    Agrifood exports continue to grow but a surge by imports has reduced the trade surplus

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    Exports of all product groups increased in the first half of 2022 in nominal terms, although meat exports barely grew (0.1% year-on-year) due to a significant decline in pork exports to China.6 More positively, exports of fats and oils (olive oil, sunflower oil), vegetables (peppers, aubergines, tomatoes, cucumbers, etc.), molluscs and fresh fish, food preparations, juices and beef have all increased. Part of this good performance can be put down to the rise in export prices since, in terms of volume, exports of some product groups actually declined in the first half of the year (fruit, meat, pulses and vegetables, beverages, dairy products, etc.). See the last column of the table below.

    • 6. Spanish pork exports to China increased sevenfold between May 2019 and May 2021, following the extraordinary growth in Chinese demand when its domestic production was severely hindered by African swine fever. However, in the last year up to June 2022, pork exports to China fell by 70%, although a large part of these exports have since been redirected to other markets.

    Notable increase in exports of fats and oils, pulses and vegetables, molluscs and fresh fish, food preparations, juices and beef

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    Thanks to the sector’s high competitiveness, Spain occupies an outstanding position in the world ranking of agrifood exporters (seventh in the world, fourth in the EU)

    One current concern is the impact the sector’s rising costs may have on its competitiveness. One way of analysing the competitiveness-price relationship is through the unit labour cost (ULC), defined as the ratio between labour cost per worker and productivity per employee. The trend in this variable makes it possible to estimate any gains or losses in competitiveness; an increase in ULC implies a loss of competitiveness as the labour cost to obtain one unit of product has increased.

    The chart below shows that the primary sector’s ULC declined sharply in 2020, especially at the beginning of the pandemic (therefore gaining in competitiveness). However, since Q1 2021 the ULC has been rising and is now at a level very similar to before the pandemic, indicating that the sector’s competitiveness remained the same over the period as a whole. Moreover, the performance of the primary sector is more favourable than that of the economy as a whole, which would have increased the ULC by 4.8% between Q4 2019 and Q2 2022. Exports will also be boosted by the euro’s depreciation of around 3% between January and July 2022 against a basket of developed countries’ currencies, and of more than 10% against the US dollar.

    The primary sector remains competitive

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The second-round effects of the inflationary shock

We take a deep dive into the components of the consumer price index to determine whether the high inflation rates recorded in energy and food prices are spreading to the other components.

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Inflation began 2021 at 0.5% and ended the year at 6.5%. This sharp rise, which has brought inflation to its highest level since 1992, has raised doubts about whether we are experiencing a transitory rebound (and will return to less concerning levels in 2022) or if we will experience more persistent inflationary pressures.

On one hand, the main factors driving the current rally (energy prices, base effects and bottlenecks caused by the surge in demand) are mostly transitory in nature, which should favour a gradual moderation of inflation in 2022. On the other hand, high prices in energy and other inputs also push up the prices of other products if sellers pass on part of their cost increase to buyers.

If these «second-round effects» are sufficiently severe and persistent (the longer the current inflation levels are maintained, the more likely that this will be the case), then the inflation shock could become much more persistent and even outlast the hypothetical moderation of energy prices and other inputs. A rise in prices across the board is also more likely to impact wages, which is another type of second-round effect that would contribute to prolonging the pressure on prices.

Spain: inflation in the CPI basket, by subclass

In this regard, it is key to understand whether the high inflation rates are spreading to the rest of the components of the Consumer Price Index (CPI) or whether, on the contrary, they are concentrated in just a few components essentially within the energy segment. To this end, we performed a detailed analysis of the 221 subclasses that constitute the CPI goods basket and how their distribution1 has evolved since 2018.

In December, 45% of the CPI goods basket (vs. 59% in November and 80% in January 2021) registered inflation rates below 2%; 32% of the CPI basket (vs. 25% in November and 12% in January 2021) had inflation rates between 2% and 5%, while 23% (vs. 16% in November and 8% in January 2021) had inflation rates exceeding 5%. The highest inflation rates are concentrated within a relatively small group of subclasses, and the three items with the highest levels of inflation do indeed belong to the energy component. Even so, there are several items within the food sector that also show very high inflation rates. In fact, 21 of the 39 subclasses with inflation above 5% belong to the food sector (most notably other edible oils and olive oil, with rates of 30.5% and 26.7%, respectively). Being an energy-dependent sector, with high pressure on profit margins and relatively inelastic demand, the food sector is most likely passing on much of its increase in costs to the final consumer. Although the current situation is concerning, it cannot be said to be alarming: with the exception of the food sector, the impact of second-round effects on the final consumer is proving to be relatively contained so far.

That said, if we look at the trend shown by the data, the message changes: the situation has deteriorated considerably since September. Comparing the distribution of inflation between September and December (see second chart), we can see that it has shifted clearly to the right. This indicates that a large portion of the subclasses that comprise the CPI have registered significant increases in their respective inflation rates.

  • 1. We analysed the distribution of inflation in the 221 subclasses, weighted based on their relative importance in the CPI.
Spain: distribution of CPI inflation (December vs. September)

The evolution of the 25th percentile, the median and the 75th percentile of the CPI inflation distribution over time offers us another perspective (see third chart). Up to September, the median remained at similar levels to 2018. This is because the surge in inflation was caused by energy-related items (mainly electricity), which have a low weight in the CPI basket but very high inflation rates (thus affecting the mean but not the median).

Spain: evolution of the CPI inflation percentiles

In contrast, since September both the median (2.0% vs. 1.2% in September) and the 25th and 75th percentiles have picked up. The most striking surge is in the 75th percentile: 25% of the CPI basket registered an inflation rate above 4.1% in December (compared to 2.1% in September). Will we see more pronounced second-round effects which will, in turn, generate persistent inflationary tensions? Not necessarily, but it will be key for the pressures on energy prices and other transitory effects to subside over the coming months, as the high inflation rates have already began to spread.

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