BarcelonaInflation is the main economic protagonist of the last year all over the world. And not as a theoretical concept, but as a burden that affects the daily life of citizens. Despite a series of measures to curb rising prices, the 2022 CPI closed with an annual rise of 5.8%, with food the main culprit. This trend has existed for some time and to combat it the Spanish government approved a reduction in VAT on certain products and food in December. The measure came into force on the first day of the year. The reduction was from 10% to 5% in the case of oil and pasta and from 4% to 0% for essential products such as bread, cereals, legumes, vegetables, fruit or dairy
Price variation in food affected by the VAT reduction
In percentage
The ARA recorded the prices of 12 products included in this sale from three different supermarkets (Bonpreu, Caprabo and Mercadona) before the application of the measure to analyze it in depth. A month after the reform, this newspaper has been able to verify that the reductions have had their effects: in an inflationary context, prices have fallen by an average of 3.2% for the affected foods. The conclusion is clear: they have gone down, yes, but less than the 4% and 5% that the VAT (value added tax) applied to them did. “There are more factors that influence the movement of prices. We are talking about products that have other tensions, such as producer costs, transport or the commercial policy of each supermarket”, points out Albert Sagués, professor of taxation in the Department of Economics and Business at Pompeu Fabra University.
It should be borne in mind that although VAT is reduced, supermarkets, distributors and producers, like most companies, see day after day how their costs increase. In addition, as pointed out by Maria Dolors Torregrossa, doctor of law and professor of financial and tax law at the University of Barcelona, the measure has come at a time when prices tend to increase: “At the beginning of the year the amounts they always go up, every year they vary in January and one thing has overlapped with the other, and that’s why we may not be noticing the drop so much”.
“At the beginning of the year prices always go up and that’s why we may not be noticing the drop so much”, points out Maria Dolors Torregrossa, professor of financial and tax law at the University of Barcelona
“It might seem that there has not been a decrease, but that does not mean that supermarkets are filling their pockets”, explains Sagués, who explains that “costs vary and the effect of the reduction in VAT it’s tiny, they’re very low-priced goods, we’re talking about cents of a difference and in some cases it’s very little noticeable.”
Supermarkets with more discounts
Of the large areas analysed, Caprabo is the one that has reduced the prices of the observed products the most (which include a list where there is a package of one kilo of flour, a jar of cooked lentils, semi-cured goat cheese, chicken eggs and one golden apple unit). On January 30, these foods in the Catalan chain had experienced a percentage reduction of 4.1%. The second position is occupied by Mercadona, with a 3.7% reduction in the prices of the analyzed foods. The ARA list is closed by the Bonpreu supermarket, which registered a drop of 1.9%. Sources in the sector point out that the supermarkets that had higher prices at the end of the year are the ones that have had the most room to lower them this January.
The ARA study also proves that there have been more discounts on white label foods than on private label ones. In fact, the latter have become more expensive. “If the measures had not been applied, prices would simply be 4% more expensive”, points out Torregrossa, who indicates that the reduction in VAT has basically slowed down the impact of inflation.
In February, when the war broke out in Ukraine, the prices of gas, oil and raw materials such as cereals and oil rose. The rest of the food industry didn’t start to notice until well into the fall. The repercussion of supply chain costs is always delayed by between 3 and 6 months, which is why the price variation and the effects of the crisis arrive late on store shelves.
Changes in vegetables and cereals
Vegetables are the foods that have experienced the most price reductions. It is, however, the sector with the most volatile prices. As Professor Sagués explains, these are fresh and seasonal products with costs that vary constantly due to bad harvests, supply and demand or the time of the season in which they are found. The same goes for cereals and pulses, two sectors that are also very unstable, which makes it difficult to describe the variation in their prices. In this case, however, the amounts have risen by 16% and 13% respectively. “In this sector the market has an upward trend; in the last year the costs have increased and in the end the price of cereals is rising little by little”, points out Sagués.
The reduction in prices of most foods has evolved more than expected. This is the case with potatoes, flour, pasta, bread and oil.
The supermarkets do not win
Facua (an organization in defense of consumer rights) has detected several irregularities in product prices in recent weeks and has reported seven large supermarket chains to the National Markets and Competition Commission (CNMC) for not passing on the drop in ‘VAT in the prices. But Rubén Sánchez, general secretary of the organization, assures that it is not the usual: “It is not a massive thing, we cannot talk about a generalized practice of the big establishments”.
The OCU points out that the reduction in VAT will not stop inflation, “but it will help the most needy families, those with 5 or 10 euros”
As long as the decree-law is in force, food outlets are prohibited from increasing profit margins on products, but they can increase prices if costs increase. The OCU (Organisation of Consumers and Users) warns that the danger is that in the end the supermarkets will end up with a reduced VAT margin: “If a thorough control is not carried out, it can be counterproductive”, warns in statements to the ARA Ester Lorente, delegate of the OCU in Catalonia. And he adds: “Supermarkets must feel constantly monitored by consumers.” Currently, the OCU is in the study and data collection phase: “If we find reportable information we will obviously make a report because it affects us all”.
Insufficient measures
“How much is a liter of milk? One euro? Well 4% is 4 cents. This would mean that the liter of milk would now be worth 96 cents, not counting that the cost of light, staff or electricity may increase. [La rebaixa de l’IVA] very little is noticeable”, insists Sagués. Along these lines, Torregrossa considers that the tax reduction “does not have a real impact on buyers” and that it is “an electoral measure that was taken very quickly, without thinking”.
Rubén Sánchez, from Facua, assures that the measures fall short: “They don’t even come close to solving the problem. If the price goes up by 20%, 100% or 140% depending on the case, a 5% drop is not a solution”. From the OCU, Lorente explains that the measure is insufficient, but that it all adds up: “It won’t stop inflation, but it will help the most needy families, who at the end of the month do get 5 or 10 euros”.
Francesc Reguant: “The fact that prices are 3% cheaper is good news”
Interview with the president of the Agri-Food Economy Commission of the College of Economists of Catalonia
How do you rate the fact that prices have fallen by 3% due to the reduction in VAT?
— The current economy is marked by inflationary pressure, and despite this, prices are three percent cheaper is good news.
Does this measure have a real impact on buyers?
— The consumer may not have the perception that the VAT reduction will affect him. But at the macroeconomic level, the country will notice it, and this has positive effects on society, basically to slightly cut the current inflationary dynamics.
Will the supermarkets win?
— It is not in the interest of the large stores to manipulate the VAT reduction in their favor. They are not interested in the high level of competition in the sector. In addition, supermarkets are very afraid of causing any scandal and looking bad. Now they are under pressure and are very closely guarded.
What are the future prospects for food prices?
— Prices have an inflationary trend and the most likely thing is that they will continue to rise. The expected process is a progressive reduction in inflation and price increases. Little by little, products will become less expensive, until they return to normality.