Softening Of Core Components In January

Spanish January final inflation confirmed flash estimates on all counts, and the full data released by INE indicates a deceleration in core HICP inflation.

• HICP ex-energy/unprocessed foods (reported by INE) softened to 3.8% Y/Y (vs 4.0% prior). Given that processed food inflation was steady at 6.1% Y/Y in January, it suggests a larger fall in core HICP per Eurostat's definition (ex-energy, food, alcohol and tobacco).
• Services inflation fell to 3.7% Y/Y (vs 4.1% prior) while core goods were 2.0% Y/Y (vs 2.2% prior). These dynamics were widely expected by analysts coming into the flash print.
• There were various tax changes implemented on gas/electricity in January (e.g. VAT on both components was increased to 10% from 5% prior). As a result, energy base effects continued to fade, with energy HICP -2.4% Y/Y (vs -6.2% prior). NSA monthly energy inflation was 3.9% M/M (vs -1.7% prior) as a result.
• MNI's inflation breadth calculations indicate that 65% of COICOP components had annual inflation rates above 2% in January, down from 68% in December and a peak of 83% in Sep '22).
• Going forward, the EC survey's expected Spanish services prices metric remains at elevated levels, having risen to 26.3 from 24.8 in December.
• Spanish industry expected prices, per the EC, continued to moderate in January to 4.3 (vs 4.8 prior), indicating that core goods disinflation may have room yet to run below 2% Y/Y.