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Light, fuel, food… A year of war in Ukraine with rising prices

Date: March 20, 2023 Time: 19:24:46

The Russian invasion of Ukraine, which marks one year this Friday, has had a strong economic cost for Spain, whose most visible face has been the record prices of electricity, fuel and food, which the Government has tried to mitigate with aid for a total value of 45,000 million euros.

The war, some 3,000 kilometers from Spanish territory, unleashed an unprecedented energy crisis, in a continent, like Europe, dependent on Russian oil and gas, making energy, cereals such as wheat, corn or barley, of those of which Ukraine and Russia are major producers, and fertilizers.

After the records reached by gas and oil in the international markets, inflation in Spain began an escalation to reach 10.8% in July, a record in 38 years, due to the greater impact of the cost of energy, which has been moderating, and food, with prices still out of control.

According to the latest data from the INE, the prices of more than half of the products that make up the shopping basket in Spain continue to grow above 6% and at the top are foods such as oil, sugar, flour and others cereals, butter, milk or eggs, with increases of more than 20%, in the interannual rate, although compared to the previous month the impact of the VAT reduction has been noted.

On the contrary, fuels became up to 40% more expensive in mid-2022, although their prices have since moderated, a trend similar to that experienced by electricity.

In order to try to contain inflation, the ECB, in line with the rest of the world’s central banks, has raised interest rates again after eleven years without doing so, taking them to 3% in its last review a few weeks ago and announcing more rises in the coming months, which is making mortgages more expensive.

Spain reduces the purchase of Russian crude, but increases that of gas

To alleviate the increase in energy prices, Spain has tried to reduce dependence on Russia, which it has achieved in the case of oil, but not in the case of gas, the purchase of which had to increase due to the diplomatic conflict with Morocco that led to the Closing of the gas pipeline with Algeria.

During 2022, Spain has raised its crude imports by 13.2%, increasing those from the US, Mexico or Nigeria and reducing those from Russia by 73%, according to data from the Corporation for Strategic Reserves of Petroleum Products (Cores). Regarding gas, the United States ended 2022 as the main supplier of natural gas to Spain, displacing the historical leader, Algeria, but Russia remained the fourth supplier country (12% of the total), with an increase of 45% of the Russian gas purchases.

45,000 million for vulnerable families and sectors most affected

The Government has tried to alleviate the impact of the energy crisis and the high inflation caused by the Russian invasion of Ukraine on families and companies, with tax reductions, direct aid and public price discounts, among other initiatives, with a total payment of 45.00 millions of euros.

Among the latest approved, highlights the elimination of VAT for basic foods (such as bread, milk, eggs, fruits and vegetables) and the drop from 10% to 5% of oils and pasta, as well as a direct aid of 200 euros for low-income families (less than 27,000 euros per year).

The aid has also been focused on economic sectors affected by the crisis, such as farmers, due to the costs derived from the increase in the cost of fertilizers, the gas-intensive industry and the ceramics sector, due to the increase in the cost of energy.

Another aid that was applied during 2022 was the bonus of 20 cents per liter on the purchase of fuel, which since January has only been maintained for professional road transport.

Yes, during 2023 the free Renfe commuter, rodalí and medium-distance passes, as well as discounts on urban and interurban public transport in collaboration with the autonomous communities, the reduction in electricity and gas taxes and the freezing of the maximum price of the butane cylinder.

Improving investment and consumption, challenges for the future

Despite the impact of the war, when the economy had not yet recovered from the pandemic, Spain exceeded expectations and grew by 5.5% in 2022, removing the risk of inflation, a growth that all forecasts maintain in 2023, although more moderate

For Antonio Pedraza, president of the Financial Commission of the General Council of Economists, “the economy has behaved very well, it has resisted with investment, tourism and exports”, and it has “an important platform to now approach 2023”. The better than expected behavior of the European economy will boost tourism and exports from Spain, says Pedraza, who also points to the improvement of Spanish competitiveness thanks to its lower inflation, although with an eye on the high core.

On the contrary, he adds, we must be aware of lower consumption, affected by the rise in interest rates, as well as business investment, due to the lack of public investment, due to the higher wage costs that will derive from the rise in the Minimum wage and excess taxation in Spain.

In it, Gregorio Izquierdo, general director of the Institute of Economic Studies, advocates improving the fiscal political sense, but through more efficient public spending, as well as reducing a maximum public debt. “The great challenge facing the Spanish economy is to improve potential GDP,” says Izquierdo, with greater productivity, thanks to greater human capital formation, and business investment, for which structural improvements are necessary.

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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