Inflation eases in December to 5.7%, but food continues to become more expensive |  Economy

Inflation eases in December to 5.7%, but food continues to become more expensive | Economy

Spanish households were not unaware that inflationary Christmas would mean an additional cost. Food had been getting more expensive for eight months with double-digit increases, and December, the month with the highest consumption, has not been an exception. This Friday, the National Institute of Statistics has put numbers on the rise in prices: inflation in the last month of the year was 5.7%, one tenth less than that announced two weeks ago thanks to the drop in energy prices , and the lowest rate since November 2021. However, the price of food and non-alcoholic beverages increased by 15.7% compared to the same month last year, a higher rate than the 15.3% registered in November.

The statistic therefore continues its toss-up dynamics: inflation has deflated by five points in five months, which has been decelerating consecutively since it reached a maximum of 10.8% in July. This has placed Spain as the EU country with the lowest inflation at the end of 2022, and the double digits seem to have been left behind. The shopping basket, on the other hand, refuses to give way, and has turned the rise in groceries into the big problem, filling the place previously occupied by energy prices for electricity and fuel, now falling in the middle of a winter of mild temperatures, strong pull from renewable sources and falls in crude oil in international markets.

Core inflation, which excludes energy and fresh food due to its volatility, also brings bad news: it rises to 7% due to the rise in clothing, footwear and food prices.

The change at the top of the list of concerns, now dominated by food, was staged at the beginning of the year, when the Government withdrew the discount of 20 cents per liter for the purchase of fuel by individuals, but in turn eliminated until June the super-reduced VAT of 4% that was paid for basic foods such as bread, milk, cheese or eggs, and reduced from 10% to 5% that of pasta and oils, including olive oil. It must therefore be remembered that the inflation data published this Friday, corresponding to December, does not include these VAT reductions, which will begin to be noticed in the next statistics, the one that computes what happened in January.

How much will this measure moderate inflation? Miguel Cardoso, chief economist for Spain at BBVA Research, has his own calculations. “Between three and four tenths would be the maximum impact, but it is more likely to be around two tenths, given that in the same way that companies have not transferred all the increase in costs to prices, it is to be expected that they will not transfer now the tax reduction”.

The consumer organization Facua has already acted against the temptation of not applying the rule, denouncing seven supermarket chains that according to its analysis have not correctly transferred the discount to their products, but monitoring its application in thousands of small businesses is practically impossible.

Ángel Talavera, chief economist for Europe at Oxford Economics, believes that the Government has chosen to lower VAT because it is a way to lower inflation immediately. “I imagine that is what the government is looking for, especially being in an election year.” In his opinion, it can be effective in alleviating food escalation, but it also has three problems. “It requires businesses to transfer this reduction to the final price, it is a regressive measure, and it has a fiscal cost at a time when the sustainability of public accounts is once again an increasingly important part of the economic debate,” he argues.

Analyst Juan Carlos Higueras, a professor at EAE Business School, is skeptical about the application of the tax. “Since they knew that they had to lower VAT on January 1, some raised prices before then to lower that VAT, thus increasing margins despite the fact that it seems to be being applied,” he says.

He believes, therefore, that the tax reduction will not be decisive in containing food inflation. “Food prices will continue to rise with or without VAT. There are many intermediaries in the supply chain that take advantage to take advantage of margin, supply problems, and inflation expectations that push businessmen to anticipate so that their margins do not suffer. Does any employer hope that the salary cost will not rise this year? ”, He wonders.

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