The National Institute of Statistics (INE) finally launches, with a year of delay, a total change how it measures the evolution of electricity and natural gas prices to calculate the inflation, with the aim of better adjusting the data to the real consumption of Spanish households. The modification was scheduled for January 2022, when other changes were already introduced in the shopping basket that is used to calibrate the evolution of the prices of the household shopping basket.
The agency has begun to apply this January a change in the calculation base of the consumer price index (CPI) to stop measuring only the evolution of regulated electricity and gas rates, and also include the free market rateswhich for years have concentrated the majority of both energy markets and which until now have not been taken into account to calculate inflation.
The initial intention of the agency was to have the reform in the measurement of electricity prices ready last January, but the plan was postponed for not getting the electricity companies to send it the price data it needed to calculate the CPI. From the INE it is pointed out that the change “it could not be undertaken in 2022 because the information was not available with a sufficient level of detailnor with the necessary technical criteria that would allow the application of a methodology consistent with the requirements demanded in the calculation of the CPI”.
Throughout 2022 “it was necessary for the main distribution companies to adapt their information processing systems to respond to the methodological requirements of the CPI”. Endesa, Iberdrola and Naturgy -which account for more than 80% of the market in both electricity and gas- have been sending monthly data on the prices paid by their customers both with the regulated electricity tariff and those on the free market since last April. and in summer they also began to send data to the INE on all types of tariffs for the natural gas business, according to business sources.
Impact on the CPI
During the past year, in the midst of the energy crisis and price spiral, the formula used to measure electricity and gas had an upward impact on the CPI, since the regulated tariffs, being directly linked to the behavior of the markets, were those with the highest price increases. the INEnevertheless, ensures that he does not have a concrete estimate of the impact of measuring inflation with a formula that was only used by a minority of customers in the electricity and gas markets and, furthermore, that they were just the most expensive rates.
The INE now emphasizes that, as the CPI only measures the evolution of prices, the change in the calculation data does not have to have a direct impact on rising inflation. Regulated electricity and gas rates are now cheaper than those on the free market thanks to government aid, but the evolution of both markets are being similar although with different final prices in absolute values.
The Government is managing to contain inflation precisely thanks to measures to contain the rise in electricity and gas through tax cuts, specific discounts for households and also direct aid to deal with rising bills. In the case of gas, the regulated tariffs, called last resort rates (TUR), are benefiting from the million-dollar aid activated by the Government and will be for at least all of 2023 with prices much lower than the free gas market rates.
During much of the energy crisis, the regulated electricity tariff has registered record prices and well above the free market tariffs, for which reason the weight of electricity in inflation was overstatedgiven that only 40% of all customers continued to have contracted the regulated rate (called PVPC).
After the implementation last June of the Iberian exception (the cap on the price of gas used to generate electricity that is applied in Spain and Portugal), on the other hand, the regulated electricity tariff has become cheaper while those on the market free have been going up when it was time for the annual review of the contracts. From the INE it is emphasized that both the regulated rates and those of the free market are being conditioned by the Iberian exception, with the reduction of the wholesale market and charging all customers the compensation that is being paid to the electric companies with gas plants, For this reason, the evolution of both types of rates measured by the CPI is being similar.
other changes
In addition to the change in the CPI calculation base for Spanish energy bills, the INE has also introduced a methodological modification that affects one of the structural elements that make up the CPI: the structure of the weights. As of this year, the main source used to calculate them becomes the National Accounts (CN), instead of the Family Budget Survey (EPF) as up to now. In this way, the CPI adapts to the criteria established by European regulations, which set the year 2023 for its entry into force.
This change in the weighting structure entails a reduction in the weight of food and housing (which includes the evolution of the price of energy supplies), at a time when until now these are groups of products that have been registering significant variations.
The INE acknowledges that the changes in the calculation methodology -both in light and gas and in the weighting structure- supposes a break in the statistical series, since the CPI this year will be measured by comparing it with that of last year, which was prepared differently. However, the agency emphasizes that the variation is minimal, that it is within the statistical error margins and that it fully conforms to the Eurostat criteria.
Related news
In parallel, the CPI introduces another change that has to do with the procedure used to carry out the survey. It’s about the collection of prices by means of electronic devices. This change will become effective throughout 2023 to simplify the process of obtaining information and expedite its processing. This novelty in the collection process seeks to capture price movements more precisely, and reduce the burden on informants.
To this end, the INE works to extend the use of automated data collection methods in more sectorsthrough the use of company databases (‘scanner data’) and automated internet collection (web scraping’).