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The price of food will continue to push it up for the rest of the year

Date: April 19, 2024 Time: 02:52:49

The evolution of the drought in Spain will mark the extent to which the price of food moderates in the coming months. In June, when the annual inflation rate stopped dead at 1.9%, the products in the shopping basket continued to become more expensive by 10.3% overall, putting pressure on consumers’ pockets. The data is within what the main research services expected given the volatility that has progressed in these products and that may go further towards the end of the year, when it is also expected that some of the extraordinary measures approved by the Government that arises from this group, such as the reduction of VAT on basic products or electricity, among others.

That food prices continue to rise with the intensity with which they do so at this time of the year was to be expected with a drought that continues to worsen week after week, says economist José Carlos Díez. “Until it rains enough, food production increases and the supply and supply markets normalize, prices will continue to be higher,” he explained to this newspaper. The intensity at which the CPI rate in food moderates arose above all from the situation of drought at the national level, since the goods produced abroad already show price falls compared to the levels of a year ago, points out Miguel Cardoso, Chief Economist of BBVA Research for Spain.

In the entity they expect food to become more expensive at a rate of around 5% or below towards the end of the year. “The drop could be greater if the rainfall normalizes,” he told ‘La Información’. In Final Funcas they place the inflation rate for all food and non-alcoholic beverages at around 7% at the end of the year and expect it to be around 2% (or even below) the next. Everything will be subject to the drought and the reversal of the extraordinary measures approved by the Government to help consumers, such as the reduction in VAT on food, but also taxes on energy, the measures that stand out for transport… .

Its elimination “could raise the rate and break the downward trend,” explains its analyst, María Jesús Fernández, who emphasizes that the estimates are affected by enormous uncertainty in a context as atypical as the current one. According to the estimates of CaixaBank Research, the month in which the food VAT readjustment is carried out and the discount for public transport ends -whether it is in November or if it is to increase- the inflation rate will be January in three tenths. Therefore, considering that the extension of the measures will have a certain effect on the CPI rate.

12.5% ​​of food products are still rising strongly

The inflation traffic light produced by the entity found that the high inflation rates in the consumer basket eased across the board in June from a year-on-year perspective. Within the food consumption basket, the spread of inflation took another step backwards. In June, the proportion of products with inflation of more than 20% stood at 12.5% ​​(6.3 percentage points below May). As detailed to this newspaper, in relation to the previous month and corrected for seasonality, the situation in June improved slightly compared to May, a month that they already considered “positive”.

Thus, the proportion of food with a month-on-month inflation rate of more than 0.8% (equivalent to an annualized 10%) stood at 21% of the total, 3.2 points less than in May, which means the lowest ratio since September 2021 -when energy tensions became more palpable-. “Broadly speaking, our current headline inflation forecast for 2023 (3.9% annual) shows downside risks. For its part, the underlying inflation forecast (6.2% annual) also shows downside risks, although relatively more moderate. “, they assert.

In this sense, María Jesús Fernández recalls that food prices have slowed down a lot in the last three months, so that their monthly growth rate is, in general terms, the usual one before the inflationary crisis appeared. “We were already expecting this significant moderation when we saw the evolution of the prices of agricultural raw materials in the international markets or those of fertilizers,” she says. The problem is that the drought could reactivate inflationary pressures and make what happened these months transient.

More tension in the global price of cereals and sugar

The drought puts in check a sector that employs 752,200 people in Spain (according to the EPA) and that represents 18.3% of exports. However, the increasing frequency of climate and weather anomalies is transcending the national level and has become a global problem that can lead to even more volatility in the prices of agricultural commodities. From the credit insurer Coface they warn that the first heat waves that are hitting the northern hemisphere and the significant water deficit will affect the yields of cereals such as wheat and corn until the end of the year. In addition, the almost certainty that there will be an episode of ‘El Niño’ starting in the third quarter will aggravate the current tensions.

This episode, which implies warmer and drier than normal weather in the Indo-Pacific region, will exacerbate the effects of climate change and affect the production of sugar, palm oil and cereals from the end of the year. In fact, the price of sugar, wheat, corn and cocoa are rising again in international markets. In the French multinational they remember that sugar is a good indicator of future trends, since it combines all the current risks: it is subject to export restrictions by the main producers, and at the same time the prices of Brent crude are supporting its demand for bioethanol producer. In addition, weather forecasts increase uncertainty about the production levels of world benchmarks (Brazil, India and the EU).

* 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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