“The Government is going to ensure, as we already did with the energy and also with the subsidies to fuelsthat the discounts of IVA and the aid to farmers are transferred directly and immediately in food prices”. It is December 27 and the president of the executivePedro Sánchez, informs the media that he is going to leave without VAT (0% rate) all staple foods taxed at 4% and that the one of the pasta and the oil, from 10% to 5%. The measure is designed to last six months or until the year-on-year rate of underlying inflation (which excludes the most volatile items such as energy and unprocessed food) drops below 5.5%; but, three months later, just halfway there, it still seems far from achieving its goal.
As a first sample, the data from the Statistics National Institute (INE), which place the food prices increased by 15.5% in January and by 16.7% in February. The figure for March is not yet public, but the advanced data for Consumer price index (IPC) revealed on Thursday that headline inflation has increased by 0.4% compared to the previous month, an increase that, although smaller, does not augur very good news. Core inflation remains high, after falling from 7.6% to 7.5%, also far from the 5.5% that would cause the measures to be lifted.
The latest analysis of the evolution of prices prepared by Kantar and presented this week at the Food Chain Observatory, corroborates this negative forecast. In the first fortnight of March, of about thirty foods and drinks, only the sunflower oil and very slightly cafés e infusions. According to these data, prices continue to skyrocket eggsthe carnelos dairythe pastrieshe olive oilthe fruitlas vegetablesthe beer and the juicessome increases that, on average, place the rise in prices at 16.1%.
He too esade economic policy center has published this Thursday an analysis that identifies that the group of foods affected by the VAT reduction actually fell in price the week after the entry into force of the measure, but that this indicator has been recovering since then until it is practically at the same level as at the end of last year. The economists in charge of this report go even further and accuse the Government of indirectly allocating more public money to higher-income families with this decision.
“The government started with inadequate measures: capping the price of food was out of place, putting taxes on large areasalso, because when the problem is one of costs, you have to go to the costs, not punish the producers or sellers”, articulates the president of the Agrifood Economy Commission of the College of Economists of Catalonia, Francis Reguant. “The second [la bajada del IVA y el bono para los hogares con rentas bajas] are more oriented towards the problem, what happens is that by leaving meat and fish out there has been a lack of intensity and that they have a limit”, says the same expert, referring precisely to the fact that all this has a direct impact on public coffers .
The government’s position
Instead, in the Ministry of Agriculture, Fisheries and Food they are convinced that it is a matter of time. “The forecast is that the expected decline in prices will be gradual: due to the peculiarities of the functioning of the food value chainvariations in energy prices and production costs occur over time”, deepen from this same department.
In his opinion, there are reasons to believe that prices will gradually decrease: that prices have already begun to fall energy costslos feed and the fertilizers (together they account for 70% of the costs of agricultural production); or that the FAO Food Price Indices -United Nations Food and Agriculture Organization- have been declining in recent months.
The climate effect
In addition, that this ministry attributes the inflationary rebound in February to the weather adversities. “The cold of the end of January and the beginning of February meant that there was a lower production of fruits, vegetables and legumes; in fact, the increase in the CPI is mainly due to the increase in fresh products,” say sources from this department, adding to this that there was more demand from Europe for having Netherlands (second largest supplier of fruit and vegetables on the continent) reduced its production in greenhouses due to the high cost of gas. “That has an effect on prices,” they conclude.
Reguant agrees, in this sense, that the scenario is much more complex than it seems, and that it is not just about facing the problems derived from the pandemic and the war in Ukraine, but also bird flu, the climate change a from fight for sustainability. “These are factors that are reducing production and increasing costs, the outlook we have is structural, therefore we have to go to the structural measures“, analyzes this economist, who proposes, for example, being more proactive in the face of possible product shortages to deploy strategies that involve buying from neighboring countries, better developing agricultural production or better managing risk.