The withdrawal of fiscal aid has the consequent impact on inflation. It was noticed in January, with the partial suppression of some of these measures and the corresponding rise in the CPI, and it has also manifested itself in March, when the VAT on electricity has returned to 21%. In this way, inflation rises four tenths this month to stand at 3.2%, according to the advance data published this morning by the INE. The main cause is this increase in VAT on electricity, which in March recovered to its usual level, after spending almost three years with lower rates, to which is also added the increase in fuel prices. In the opposite direction, the behavior of food stands out, which continues to moderate; they rise, but less than in the same month of the previous year.
For its part, underlying inflation, which does not take into account energy or fresh food, continues its moderation. In this case, it drops two tenths, to 3.3%, which represents its lowest rate in the last two years. In this way, the convergence between the two indicators is increasing and this month only one tenth separates them due to the much slower moderation process of the underlying rate. “We are witnessing a process of very slow disinflation on the part of the core, which may reach a rate of around 2.9% by the end of the year,” says María Jesús Fernández, senior economist at Funcas.
This year started with an inflationary surge caused by the partial withdrawal of fiscal aid, which was followed by a relaxation in February thanks to the fall in the price of electricity and the maintenance of the price of food. Now, in March there has been a new increase of four tenths in prices, also motivated by a fiscal issue, the withdrawal of aid.
The point is that the lowering of the wholesale price of electricity is not noticeable in the prices, due to the tax increase. Since March 1, VAT on electricity has been taxed again at 21% instead of the previous 10%, or 5% last year. The reason is the drop in the wholesale price of electricity. By falling below the limit set at 45 euros MWh, the return of VAT to its original level was automatically activated. This occurred in February, with an average of 40 euros MWh, and in March the trend is even more pronounced. The forecast is that this average will remain around 18 euros MWh, also helped by Storm Nelson, which in the coming days will leave enough wind to boost the production of wind energy and thereby lower the price of electricity.
In February, inflation moderated due to the fall in the price of electricity, and also the stabilization of the price of food, which remained at an increase of 5.3% year-on-year. The rate for food is certainly high, but if we compare it, we discover that it is the lowest since January 2022, that is, before the war in Ukraine. Although general inflation has been showing signs of easing for months, food costs more, and continues to take a considerable toll on visits to the supermarket. Now, the first indications from March are that food continues to moderate.
Looking to the near future, the forecast is that general inflation will continue to rise in the coming months. “An increase reaching 3.5% in May and June and then falling again,” says María Jesús Fernández, from Funcas, who predicts a rate of 3.2% for December, which would be only three tenths less than the current rate. . A slight descent punctuated by ups and downs along the way.
