Food prices have become a major problem not only for millions of households, but also for the European Central Bank (ECB) in its particular battle against inflation. While energy is becoming cheaper in year-on-year terms, the consumption basket continues to become more expensive in the Eurozone and delays further general price moderation, which may have effects on monetary policy.
In July, according to the data released yesterday by Eurostat, food prices in the euro zone rose by 11.6% compared to last year and have become the category that puts the most strain on the pockets of Europeans by far.
The data released yesterday by the European center would have been better if it weren’t for this circumstance. Inflation dropped two tenths in July compared to the previous month and stood at 5.5%, in line with what had been anticipated. In underlying terms, excluding energy and fresh food, the progression was 6.6%, two tenths less.
The drop would have been greater and would have brought the ECB a little closer to its goal of keeping inflation at 2% if it weren’t for food. Their persistent increases reduce the effect of the 6.1% year-on-year reduction in energy prices and aggravate the increase in the price of services, by 5.6%. In July compared to June, practically all headings moderated, but food did not, with an increase of 0.4%.
Yesterday’s data also show a trend that has been in place for more than a year in the European Union. The war in Ukraine, the drought and rising costs have the continent plunged into a particularly intense spiral of price rises in products such as sugar, oils and milk.
Spain does not escape this drift and, despite appearing as the third EU country with the lowest inflation, it is close to the average in terms of food. They rose by 10.8%, more than in nine countries, although not as much as those with the most worrying increases, which are Hungary, with 21%, and Poland, with 16.7%, both outside of the euro zone.
On September 14, the ECB meets to decide whether to raise rates beyond 4.25% or maintain them. The new strategy, as explained by its president, Christine Lagarde, is to look at every piece of data and act accordingly, with an eye on growth statistics, demand and, above all, inflation.
Analysts at Oanda appreciate “abundant upside risks” related to inflation, including “further disruptions in energy or food prices.” Nomura has long warned that food would lead to prolonged inflation, and DWS indicates that, with signs of a slight decline in food prices, it is lower than expected. “The increase continues to be too strong and is a burden on family budgets”, they add.
In Spain, the rise is being particularly pronounced in sugar, up 44% year-on-year in July, and in olive oil, which has experienced a 39% increase in price over the year and already costs seven euros in liter Milk also costs more, which goes up by 17%, and potatoes, by 16%. Cereals are the only product that rises less than general inflation, by 1.2%.
The main measure that the central government has put in place to alleviate the increases has been the abolition of VAT on basic food and the reduction in some from 15% to 10%, including pasta or oil The question is whether the supermarkets pass this reduction on to the final consumer, although the CNMC has just published a report in which it assures that there is no evidence to the contrary.
Another measure is the check of 200 euros for families with incomes below 27,000 euros, insufficient according to consumer associations. The OCU is one of those who are demanding that the central government raise this amount in an “urgent and substantial” way.
