It is known that the withdrawal of fiscal aid has an immediate impact on inflation, and the rule has been confirmed again. It was noticed in January, with the partial removal of some of these measures and the corresponding rise in the CPI, and it was also manifested in March, when the VAT on electricity returned to 21%. In this way, inflation increases this month by four tenths and stands at 3.2%, according to the advanced data published yesterday by the National Institute of Statistics (INE).
The main cause is the aforementioned increase in VAT on electricity, which in March has returned to its usual level, after spending almost three years with lower rates. A second reason is the increase in fuels, while in the opposite direction the behavior of food stands out, which continues to moderate; they go up, but less than in the same month of the previous year.
For its part, the underlying inflation, which does not take into account energy or fresh food, continues its line of moderation. In this case, it drops two tenths, to 3.3%, which is 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, when in the summer the difference reached four points.
“We are witnessing a very slow process of disinflation on the part of the underlying, which may reach the end of the year with a rate of around 2.9%,” says María Jesús Fernández, senior economist at Funcas. Core inflation is always less volatile and also slower in its movements.
2024 began with an inflationary increase caused by the partial withdrawal of tax subsidies, which was followed by a relaxation in February thanks to the fall in the price of electricity and the maintenance of food. Now, in March, there has been a new rise of four tenths in prices, once again motivated by a fiscal issue, the withdrawal of aid.
The issue is that the reduction in the wholesale price of electricity is not reflected in the prices, due to the tax increase. Since March 1, the VAT on light has been taxed again at 21% instead of the 10% that ruled since January, and the 5% that applied from July 2022; some reductions that were introduced to be able to cheat the inflationary spiral.
The aid has been eliminated due to the fall in the wholesale price of electricity, since when it fell below the limit set at 45 euros/MWh, the return of VAT to its original level was automatically activated. This happened in February, with an average of 40 euros/MWh, and in March the trend is even more accentuated. The forecast is that this average will remain close to 18 euros MWh, helped, in addition, by the storm Nelson, which in the coming days will leave enough wind to boost the production of wind energy, and with that, lower the price even more of the light
In relation to fuel, its price has risen when it fell in the same month last year, and the cause must be found in the increase in oil since December, with the price of a barrel of Brent oil at 86 .25 compared to the $77 it closed 2023 at.
On the other hand, the data released yesterday indicates that food prices rose less than in the same month of the previous year, although no further details are given. Already in February, food increased by 5.3% year-on-year, an admittedly high rate, but on the way to moderation.
With a view to the near future, the forecast is that general inflation will continue to rise in the coming months. “An increase touching 3.5% in May and June and then going down again”, points out María Jesús Fernández, from Funcas, who predicts a rate of 3.2% for December.
