Food prices rise despite anti-crisis measures

Food prices rise despite anti-crisis measures

BarcelonaThe lowering of the VAT on basic foods approved by the Spanish government in December has been insufficient to contain prices, at least during this January when the measure has been in force. Core inflation – that is, the indicator that measures the evolution of prices excluding more volatile elements such as energy and fresh food – stood at 7.5% in the first month of 2023, according to the data advanced this Monday by the National Institute of Statistics (INE). They are five tenths more than the one recorded in December. Regarding the variation compared to December, the set of all prices of consumer goods and services registered a decrease of three tenths.

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The last cabinet meeting in 2022 concluded with the approval of a package of anti-crisis measures aimed at containing rising food prices. Having managed to get the headline CPI rate to accumulate several months of year-on-year declines, the next pressing objective was to do the same for core inflation. Last month was given for the first time in this price crisis one overtaking of the underlying over the general.

Evolution of consumer prices

CPI in Spain. Index 100 = prices

In any case, the Spanish government has defended that inflation (in its general indicator) did stabilize in January to 5.8% year-on-year, only one tenth more than that recorded in the previous month and in its lowest level since November 2021. It should be noted that this figure is five percentage points lower than the peak last July, when inflation climbed to 10.8%, the highest point since September 1984 .

Variation in prices compared to a year ago

Rate of interannual variation of the CPI. Monthly data in percentage

In fact, from the Ministry of Economy they have also highlighted that this rise in the CPI is very moderate considering that the generalized bonus of 20 cents per liter on fuel was eliminated.

According to the INE, this evolution is mainly explained by the fact that fuel prices are increasing more than in January of last year and the fact that the decline in categories such as clothing and footwear is smaller. Conversely, the drop in electricity prices is more important now than a year ago.

So what has been the impact of the Spanish government’s anti-crisis package? For Àngel Hermosilla, technical secretary of the College of Economists of Catalonia, the measures used to try to contain prices have had a “partial” effect. “Surely they have a positive impact and have moderated the rise in inflation that could have occurred, but they do not help to solve the problem,” reasons the expert. In his opinion, these aids have fallen short and have only succeeded in dampening the upward price update that many companies tend to do in January.

The Spanish government has shown confidence that underlying inflation will reach its peak in this first quarter and that the downward trend of the CPI will continue. However, Hermosilla insists that this data is “the most worrying” and points to the fact that the inertia of the last months will still be maintained. “This shows the tensions that are now in all supply chains,” he says. The economist also warns that it will be necessary to focus on the behavior of the winter, which has hardened the temperatures in recent weeks, with the consequent increase in heating consumption. “Just as the weather benefited us in October and November, now the opposite can happen,” adds Hermosilla.

Tax measures

In a statement, the College of Economists of Catalonia reviewed what measures would be necessary, in their opinion, to face this “clearly inflationary” winter. In this sense, the organization’s main recipe focuses on the deflation of Personal Income Tax (IRPF), both at state and regional level. Deflating this rate would imply eliminating the effects of the increase in the cost of living, in order to limit the loss of workers’ purchasing power.

“What is clear is that families and the most vulnerable groups are suffering and that is becoming very evident. We need to turn around the measures to help offset this effect. Giving a subsidy is not as effective as leaving of collecting personal income tax directly from them,” remarked Hermosilla. The College has also urged progress in an income pact, approving “immediately” the budgets of the Generalitat de Catalunya and speeding up the implementation of European Next Generation funds.

Methodological change at the INE

The National Institute of Statistics (INE) has incorporated for the first time the evolution of the price of electricity and gas from the free market and, at the same time, has modified the structure of expenditure. Until now, the INE only took into account the regulated market (PVPC rates). Now, however, those free market customers will also be included. After months of work with electricity companies and marketers to collect the data and analyze it, the INE has introduced free market customers, thus covering 80% of the total market share. The incorporation has the endorsement of Eurostat.

Electricity affects general inflation and not the underlying one, they remind from the organization. From the entity they also explain that despite the fact that when a structural element is modified “the comparative effect is lost”, this last change “is not important enough to say that the data is not fine and cannot be compared”, they maintain.

With regard to household spending, until now the Family Budget Survey was used and from now on the National Accounts will take center stage. This change basically implies a modification of the weight that each budget item has for families: from food to spending on housing (electricity, water, etc.). In these two cases the weight is cut, but other games gain. Also the quota of the dress and footwear, as well as the communications will have less weighting.


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