With the escalation of fuel and electricity contained, food has emerged as the most difficult inflationary bastion to assault. This Friday, the data published by the National Institute of Statistics reflect a very slight moderation in their prices: in March they became more expensive by 16.5% compared to the same month last year, just one tenth less compared to the 16.6% rise in February, its maximum. The figure opens the door for the increases to have reached a ceiling, but the continuity of the double-digit advances shows the difficulties to return to more normal rates the evolution of what citizens pay for the shopping basket, a key expense that when it increases, it especially hits families with fewer resources, since it represents a higher percentage of their budget.
Not even the reductions in VAT on basic foodstuffs undertaken by the Government are being effective for significant setbacks to occur. Among what rises the most compared to the same month last year are items used in the daily life of millions of consumers: sugar is 50.4% more expensive, butter 37.7%, olive oil 32, 1% and whole milk 30.8%. The tourist recovery is felt in prices, despite the fact that the statistics do not include Easter: international flights rose 18.8%, and hotels, hostels, pensions and other accommodation 15.5%. On the opposite side, electricity fell by 51.8%, diesel by 15.3% and gasoline by 12.6%, which is a relief for households that are most dependent on cars. Public transport also registered significant decreases, supported by discounts approved by the government and autonomous communities: the metro decreased by 24.2%, and the bus by 25.1%.
The disconnect between international food prices published each month by the FAO —the United Nations agency dedicated to food and agriculture— and the reality of what consumers pay when going to the supermarket, has been driving the debate about whether some link in the chain is taking advantage of the situation. FAO calculations indicate that international food prices are 20% below their peak a year ago, when the war in Ukraine began, and since then they have been decelerating for 12 months thanks to initiatives such as the agreement with Russia that allows to export grain from Ukraine, relaxation of tensions in supply chains and lower demand from importers. However, these movements have not yet been transferred to the shelves: according to the INE, food and non-alcoholic beverages now add up to exactly one year, becoming more expensive by more than 10% in Spain.
The experts cite among the causes the rise in the price of energy, seeds and fertilizers, which would have made production more expensive —and that despite the falls in electricity and fuel, the process until it is reflected is slow—, as well as phenomena adverse weather conditions such as droughts and frosts, which would have been responsible for the worst harvests, thus reducing the supply. Don’t ignore the statistical issue either: Food took longer to rise than energy when Russia’s invasion of the Ukraine shocked commodity markets. And it wasn’t until April that its impact was felt most strongly on edibles.
This makes it much more likely that next month there will be a slowdown in food inflation: when compared to April 2022, which already placed prices at high thresholds, it is more difficult for them to continue to become more expensive at the rates seen recently. And as the months go by, that base effect will push down the inflation of these items, since when measured with what happened a year ago, it will be compared more and more with months of expensive food. In addition, Mercadona, the country’s main supermarket chain, has announced sales on 500 products until the end of the year after verifying that cost prices are already falling in the market, albeit “slowly”. And its rivals Dia and Eroski have announced that they will make discounts.
Regarding the general inflation rate, the INE maintains the data advanced two weeks ago, which leaves the CPI for March at 3.3%, its lowest percentage since August 2021, and the second lowest in the entire European Union, only behind Luxembourg. Sources from the Ministry of Economy maintain that the evolution of prices in Spain is benefiting national companies. “This lower inflation is favoring the competitiveness of Spanish companies, as evidenced by the gains in market share and the increase in exports of goods and services, even in the complex international economic context.” Core inflation, which excludes energy and fresh food, on the other hand, remains very high, at 7.5%, which indicates contagion to other products.
Although prices will still lurch upwards and downwards, according to a report by the Arcano investment bank, the trend is clear: 2023 will be the year of slowing down inflation, and 2024 that of normalizing prices. Among the key factors, he points to energy. “Gas price futures have fallen on mild weather and record reserves,” he notes. He also alludes to issues such as the lower economic growth derived from the rise in rates; the cooling of bank credit due to the greater liquidity needs of the banks; lower demand for goods due to the end of pandemic restrictions, which pushes consumers to spend more on services; the drop in Chinese demand for raw materials due to the real estate crisis or the aforementioned base effect.
The slowdown in inflation in the US —from 6% to 5%— known this Wednesday benefits Europe and Spain from a rebound: the prospects of a faster-than-expected improvement —even with the mole of the underlying high— encourages the idea that the Federal Reserve will be less harsh in its rate hike policy. And that pushes the euro. The revaluation of the single currency to levels similar to those of a year ago —it is exchanged for 1.10 green bills— in turn makes it possible to lower the price of European energy imports, which are paid in dollars, thus reducing the bill.
It’s not all good news. The threat of setbacks in the battle against inflation has not gone away. Especially due to the persistent drought suffered by the Spanish countryside and the movements of OPEC, which announced on April 2 a cut in production of 1.16 million barrels per day between May and the end of the year to support the price of crude oil. . The news caused an immediate rebound in its price, although it is still too soon to say whether it is a change in trend or just a reaction that will gradually be digested by the market.
For Francisco Blanch, head of raw materials at Bank of America, there are reasons to think that oil will stop its fall. “Macro indicators do not suggest an imminent slowdown, and demand for price-sensitive services (such as jet fuel and gasoline) should be supported by China’s reopening and strong Western labor markets. More importantly, in a world of tight physical supplies and ample consumer demand, the price elasticity of US shale production has fallen sharply, putting OPEC+ back at the center of trade formation. oil prices”.
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