Inflation in Andorra is not an exception. Since mid-2021, around the world and especially in Europe and the United States, prices began to skyrocket in an uncontrolled and continuous way. First they told us that it was temporary, then that it was due to bottlenecks, also that it was due to the economic slowdown during the pandemic, and finally that Putin is to blame for invading Ukraine.
Politicians, central bankers included, are like this: they never admit mistakes and nothing is their fault. Everything bad that happens is the fault of an external factor and everything good that happens is thanks to them, who are the supreme saviors of humanity. That they have spent the whole decade applying the most expansive monetary policies in all of history to avoid the puncture of the bubbles that they themselves generate has nothing to do with it. Minimum and even negative interest rates, massive asset purchases and even the distribution of arbitrary checks to citizens have become the new economic normality.
In any case, they have not given a single one. Inflation continues to accelerate across the West at a tremendous rate, especially in terms of energy. And this is not the fault of the politicians either, those who, despising the potential of nuclear energy, decided to maintain renewable energy sources in an unsustainable way with subsidies and continue consuming fossil fuels. Of course, with resources imported from abroad so as not to feel guilty. This has led a large part of Europe to energy dependence on a regime as authoritarian as Russia with all its consequences.
And how has this situation occurred in Andorra? We already mentioned at the time that, as far as electricity is concerned, the Andorran electricity company FEDA ended up raising its rates by 15% because it could no longer bear the cost pressures on its accounts. Even so, electricity is much cheaper in Andorra than in all the surrounding countries due to its peculiarities. Well, in this article let's see how inflation has evolved in the Principality.
Inflation rate in Andorra
Below we can see the year-on-year inflation rate in Andorra, according to the data shown by the Department of Statistics of the Government of Andorra:
As we can see in the graph above, inflation in Andorra measured on an annual basis was stable between 01Q2Q and 11Q2Q from 2019 to early 2021, at which point it began to increase and skyrocket to 7.4% June 2022. Inflation is the annual variation of the Consumer Price Index (CPI), which in Andorra is named as a general index.
This is the highest inflation in the entire historical record that Andorra has. Said record isIt dates back to the beginning of 2002, which is the moment in which the euro began to circulate as currency in Spain and France and became the de facto currency of Andorra. Below we show a graph of the entire record of the price variation, and as the current rise is even greater than the one at the peak of the real estate bubble where there was a price rise of 6% per year:
Thus, the general price index has gone from 99.98 in June 2021 to 107.38 in 2022, which is consistent with the increase in annual inflation. If we separate it by categories or groups, we see in the graph how it is obvious that Where inflation has had the most impact is in transportation, with a rate of 17.3% (light green line) followed by food and non-alcoholic beverages with 9.5% (dark blue line) and the group of "household, water, gas, electricity and other fuels" with 6.6% (light blue line). This is also problematic since the cost that most influences the live in Andorra is the living place.
Similarly, if we break down the inflation data into the subgroups or subcategories offered by the Andorran statistics, we observe that the subgroup with the highest inflation is «Electricity, gas and other fuels» with a whopping 30.4% (in pink), followed by food with a whopping 9.7% (dark blue). In case of dividing it by classes, the one that increased the most by a great deal was that of «Oils and fats», with a rate of 34.1%.
Finally, if we take the data of the special groups or categories, the largest of all is the one named as «Oil products», with a price increase rate of 62.7%, followed by «Energy» with 51.3% and «Fresh and oil products», 35%. If we discount energy prices, Andorra's inflation is only 3.9% and the famous core inflation is 3.2%. You can see some pprices and an estimate of the Andorran cost of living here.
Why is inflation in Andorra lower than in Spain?
As we can check, Andorran inflation is lower than Spanish inflation. Comparing the same month (June 2022), Spain had inflation of 10.2% and core inflation of 5.5%, in Andorra inflation was 7.4% and core inflation of 3.2%. The main reason is that Andorra is located between Spain and France, and inflationary pressures come from both neighboring and adjoining countries.
Y given that inflation in France is lower than in Spain, the French side of the Principality alleviates inflationary tensions. For providing concrete data, in France in June 2022 there was an inflation of only 5.8% and one core inflation of 3.7%, according to official information sources (the French National Institute of Statistics and Economic Studies, INSEE). This information is also consistent with the publications of Trading Economics o rate inflation.
Recession in sight...
The Government of Andorra forecasts that in 2022 it will end with an inflation of 4.5% and it will be much lower than 2% in the next 5 years. Something that, although they sell it as positive expectations, indicate the opposite. Central banks such as the Federal Reserve (FED) in the United States and the European Central Bank (ECB) in Europe are raising interest rates to their highest rate in history after increasing the money supply with unprecedented intensity as well. in the history.
The United States has already entered a technical recession and everything indicates that the economy is going to be stagnant or even contracting in the coming years. The war between Russia and Ukraine has also become entrenched and if we add to that the puncture of the terrible Chinese real estate bubble, the truth is that the future points to a strong economic crisis soon. While this reduces inflationary pressures, stagflation can easily occur.