INE's Core HICP Biased Lower By Processed Food; But Breadth Metrics Improve

Spanish December CPI and HICP confirmed flash estimates, though details of the final release show that core HICP (according to INE's definition) was driven by processed foods disinflation, rather than core goods/services.

• HICP ex-energy/unprocessed foods (reported by INE) softened to 4.0% Y/Y (vs 4.5% prior). Processed foods, alcohol and tobacco inflation (which is excluded in Eurostat's definition of core HICP) fell to 6.1% Y/Y (vs 8.5% prior).
• However, non-energy industrial goods HICP inflation rose to 2.2% Y/Y (vs 1.9% prior) and services softened only a touch to 4.1% Y/Y (vs 4.2% prior).
• This suggests that Spain's contribution to Eurozone-wide core HICP disinflation may be lower than it initally appears.
• The latest services PMI (for December) indicated that prices continued to be pushed up by wage pressures, indicating that the deceleration of services inflation may continue to be slow and steady at best.
• Negative energy base effects showed continued signs of abating, with annual energy inflation -6.2% Y/Y (vs -9.8% prior, and a trough of -25.5% in March '23).
• MNI's calculations indicate inflation breadth (measured as the % of 4-digit COICOP categories with inflation rates above 2% Y/Y) moderated to 68% (vs 70% prior and a peak of 83% in Sep '22), with only 23% of sub-components with rates above 6% (vs 29% prior).