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The Bank of Spain foresees that the drop in food prices will continue to be slow

Date: February 23, 2024 Time: 22:47:02

Last March, when it presented the previous edition of its Quarterly Report on the Economy, the Bank of Spain (BdE) prevented the price of food from increasing by 12.2% on average in the year as a whole. On Monday, the entity revised the estimate slightly downwards and now expects the shopping basket to become more expensive by 11.3% this year. Almost a quarter has passed, but the pressure affecting these key components of the CPI -on which the Central Government has also kept close watch for months- has barely eased.

Energy, above all, but also food, allowed, for example, the annual inflation rate to moderate last month to 3.2% after the rebound registered in April. The rise in these products has calmed down in May for the third consecutive month and, nevertheless, their prices have continued to rise by 12%. The first vice president, Nadia Calviño, has been maintaining that the Government does not rule out extending the reduction or abolition of VAT on basic food items beyond July 30 if price levels that are “more adequate” are not reached. given the influence that these have on the pocket of families, especially those with lower income.

“We will adapt the measures to the needs of the moment,” added the Minister of Economic Affairs last week from Ferraz, after meeting with the coordinators of the PSOE electoral program. The BdE considers that, most likely, the increase in food peaked last February, when these products shot up 15.7%. However, it will not be until the next exercise when the pressure on them begins to really subside with force.

By then, the organization headed by Pablo Hernández de Cos expects that its inflation rate will have adjusted to 4% and that it will remain in the same line of moderation in 2025, when it would rise to around 2.4% -the BdE has improved both calculations in compared to what was estimated in March. Regarding the VAT reduction, which will have been transferred “almost in its entirety” to the final prices, the regulator affects an extension that would allow its rise to be contained even more but will have negative effects on the necessary fiscal consolidation.

The most visible slowdown in oils, bread and cereals

In the period elapsed in the second quarter, a “moderate deceleration trend” also seems to have begun, both in food prices (particularly visible in the case of oil items, bread and cereals, and dairy products), as well as those of the underlying, points to the entity throughout the report. He attributes this resistance to the organism to the fact that there will be a greater moderation of several elements that, in fact, can also be determinants of its evolution in the future.

These factors include, for example, the existence of possible asymmetries in the transfer to consumer prices of variations in energy costs, but there is also the drought (which implies an upward risk in the future evolution of prices of certain foods) or the possibility that they can obtain second-round effects on inflation through wages and/or business margins.

Thus, and despite the fact that the decrease in the costs of some productive inputs -which, such as energy or fertilizers, registered strong increases during a good part of last year- contributed to reduce pressure on the price of food, the reduction in some agricultural harvests due to of adverse weather conditions “will tend to limit” their moderation to a certain extent, warned the Bank of Spain throughout the document.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

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