Since the rise in prices began, the Government has applied palliative measures to reduce its impact on the most vulnerable incomes, be it the fuel discount, already eliminated, or the recently launched reduction in VAT on essential foods, such as bread, flour, milk, cheese, eggs and fruits and vegetables.
After a month of this VAT reduction being in force, the INE data show that it has effects, but limited ones. In January, food inflation in year-on-year terms only dropped three tenths, and remained above 15%. Without these reductions, the increase would have been higher, up to 16.7%.
Examining the evolution of prices in detail and month-on-month, it can be seen that the CPI of the basket affected by the VAT reduction fell by 1.6% (although the VAT reduction was higher, 4%), but in On the other hand, the group of foods not affected by the reduction increased by 1.4%.
Comparing the impact product by product, also in month-on-month terms, it can be seen how the VAT reduction manages to lower the price of the vast majority of products affected, albeit very moderately. This is the case of bread, which would have risen by 2.9% without the reduction in VAT and which instead fell by 0.2%; or milk and eggs, which would have risen 2.2% and 2.3% and instead the price fell 1.5%; or olive oil, which would have increased by 3.3% and instead fell by 1.2%.
The economists’ forecast is that the moderation of food prices has to arrive and the discussion is on the formulas to alleviate its impact during the period of time in which it remains at high levels. “There is a more effective and direct way than the VAT reduction to help the lowest incomes, and it is local anesthesia, through direct injections, transfers to these homes. These transfers have two advantages, they arrive in a more direct and precise way, it is a high-precision surgery, and with less fiscal cost”, affirms Anton Costas, president of the Economic and Social Council.
The discount on gasoline benefited higher incomes more and the VAT reduction is general, although certainly with more impact on low incomes. For this reason, direct transfers would be more effective in their function of helping the vulnerable, provided that sufficient information is available to identify these people and that effective and agile systems are put in place for its distribution, something that is not easy.
This Monday, the Minister of Agriculture, Luis Planas, brings together the food chain to analyze the evolution of prices. It is a meeting of the Observatory of the Food Chain (OCA) to examine the impact that the VAT reduction on some basic products has on the shopping cart. Planas maintains that the moderation in food prices from 15.7% to 15.4%, although “it may seem little”, means that the increase in recent months has been stopped and that without having adopted the VAT reduction ” It would have been much better.”
From Podemos they propose more radical measures, such as a bonus for food similar to the one implemented with fuel. In this case, it would be 14% for a basket of 20 foods at a cost of 5,000 million euros. Planas was against it. “Some would like to abolish VAT or personal income tax and for the State not to provide services and on the other side are those who well-intentionedly ask to put a cap on the price of food,” he said, adding that “both approaches do not seem adequate to me and the Government , without ideological prejudices, is taking measures that serve to reduce prices”.
