Fynsa
During the last few weeks, we have talked a lot about the issue of the issue of electricity rates, the significant increase that is expected during the following months and what it would imply in terms of inflation. Regardless of some methodological "curiosities" that INE has recently applied and the publication of rates for July that include lower increases than those estimated, I believe that we have forgotten the rest of the products in the basket, whose analysis should not be indifferent to us.
In the immediate term, the June CPI decreased 0.1% versus May, which was in line with our expectations. Thus, the year-on-year change increased slightly to 4.2% (from 4.1%) for the spliced series, the year-on-year change increased slightly to 4.2% (from 4.1%) for the spliced series, and to 3.8% (from 3.4%) in the benchmark series. All in all, prices accumulated an increase of 2.4% so far in 2024. On this occasion, the divisions that had the highest negative impact were Clothing (-6.1%; impact -0.167 pp) and Household equipment and maintenance (-2.2%; impact -0.134 pp), which was partially offset by Food (+1.3%; impact 0.287 pp).
If we analyze the falls, we realize something interesting that, although it has always been in the popular wisdom, now even the official indicators reflect it: in May we saw an increase in prices motivated by the cyber day that was coming in June, in order to show more impressive decreases in front of the consumer.
But, beyond this anecdote, other things happened. The CPI excluding Volatiles fell 0.2% m/m, bringing its y/y change down to 3.2%. Yes, you read that right, already almost 3%. This allows for a quite different analysis than what might have been inferred in May. Disaggregating, the Non-Volatile Services component increased 0.2% m/m, going year-on-year from 5.3% to 5.1%. On the other hand, Goods showed a negative variation of 0.8% m/m, causing the year-on-year comparison to decrease from 1.1% to 0.7%.
More shockingly, we note that the diffusion index (or percentage of products that increased in price) reached 36.4%, the lowest of the year, below the June average (45%) and the figure for 2023. As previously mentioned, this confirms that the explanation for last month's rise in the indicator was the price increase prior to the cyber dayespecially for the divisions in which it was evidenced.
Given this background, we continue to see that, excluding the potential impact of electricity tariffs, inflationary pressures in the economy are low and continue to reflect a stagnant activity that is not yet showing concrete signs of recovery, inflationary pressures in the economy are low and continue to reflect a stagnant activity that still shows no concrete signs of recovery. The exchange rate and now tariff shocks would not be enough to have significant impacts beyond the direct ones and the risk of second round effects are low. All in all, then, we believe that the Central Bank's caution in the face of these events has been disproportionate and the message of a single additional 25 bp cut in the TPM could fall short in an economy that no longer requires a contractionary monetary policy. Thus, if this trend continues, the Central Bank will have no choice but to change its discourse in the September IPoM, perhaps not significantly modifying its vision for 2024, but for the first part of 2025.
