`As Spain Fights Food Inflation, Pressures Keep Mounting - Olive Oil Times
enEnglish
enEnglishfrFrançaiselελληνικάdeDeutscheitItalianozh-CN中文ptPortuguêsesEspañoltrTürkçehrHrvatskija日本語hiहिंदी
enEnglish
enEnglishfrFrançaiselελληνικάdeDeutscheitItalianozh-CN中文ptPortuguêsesEspañoltrTürkçehrHrvatskija日本語hiहिंदी

As Spain Fights Food Inflation, Pressures Keep Mounting

By Máté Pálfi
May. 22, 2023 22:44 UTC

As coun­tries across Europe grap­ple with his­toric infla­tion lev­els, a com­bi­na­tion of luck and pol­icy has seen Spain buck the trend.

According to European Union data, the Harmonized Index of Consumer Price (HICP) infla­tion across the Eurozone, the 20 coun­tries that use the Euro, increased 7 per­cent year-on-year in April 2023. However, this mea­sure was far exceeded by food and bev­er­age infla­tion, which rose by 15 per­cent.

Yet, infla­tion in Spain was sig­nif­i­cantly lower, with over­all HICP infla­tion reach­ing just 3.8 per­cent and food and bev­er­age infla­tion is 12.9 per­cent, the fourth-low­est in the Eurozone.

See Also:Climate Disasters Drive Prices Higher

While food and bev­er­age infla­tion started ris­ing above the bench­mark two per­cent at the end of 2021, it exceeded dou­ble dig­its for the first time in decades after the Russian inva­sion of Ukraine in February 2022.

Food price infla­tion peaked in Spain in February 2023, reach­ing 16.6 per­cent. According to the Bank of Spain, aver­age infla­tion was 1.8 per­cent lower than fore­casted, with the bank adding that the gov­ern­ment man­aged to keep 90 per­cent of tar­geted food prod­uct prices low.

The gov­ern­ment addressed ris­ing prices and alle­vi­ated the infla­tion­ary pres­sures felt across Spanish soci­ety with a series of coun­ter­mea­sures, includ­ing tax cuts on food prod­ucts and pro­vided relief for those strug­gling with rental pay­ments.

The Spanish gov­ern­ment reduced the value-added tax (VAT) on cere­als from four per­cent to zero in response to the soar­ing prices of cereal-based prod­ucts. As Ukraine, a major sup­plier of these goods, expe­ri­enced a decline in pro­duc­tion due to the war, their prices started climb­ing.

To com­bat ris­ing olive oil prices, which have hit record highs in Spain due to infla­tion­ary pres­sures and falling global pro­duc­tion, Spain low­ered the VAT for olive oil from ten per­cent to five per­cent.

These deci­sive actions helped counter ris­ing food prices at the cus­tomer level. However, they have reduced income for the coun­try through tax­a­tion, the con­se­quences of which remain to be seen.

Producers wel­comed the mea­sures but warned the gov­ern­ment that a total reduc­tion was needed, con­tend­ing that the ris­ing energy and fer­til­izer prices would con­tinue to under­mine prof­itabil­ity.

Still, climb­ing energy prices has affected Spain far less than many of its E.U. peers. At the start of the war, energy prices reached their absolute peak but quickly and steadily fell back to pre-Covid and pre-war lev­els.

The quick nor­mal­iza­tion of energy prices in Spain is due to its high share of renew­ables, expected to pro­duce 50 per­cent of the country’s energy needs this year. Nuclear power makes up an addi­tional 20 per­cent, and unlike many of its E.U. peers, Spain was far less reliant on Russia for crude oil and nat­ural gas imports.

Due to its loca­tion, Spain also enjoys mild win­ter tem­per­a­tures and requires less energy to heat homes and build­ings dur­ing the win­ter.

In short, while infla­tion con­tin­ued to rise, tax cuts helped to main­tain afford­able prices. Despite expec­ta­tions of sig­nif­i­cant price hikes, the reduc­tion in VAT played a cru­cial role in keep­ing food afford­able.

However, pres­sure will likely remain on food prices, espe­cially olive oil. As last year’s drought con­tin­ues into this year and high spring tem­per­a­tures plague agri­cul­tural fields in the pro­duc­tive south of the coun­try, pres­sure will con­tinue to push prices up.

While olive oil prices stopped their steep climb from January to March 2023, they rose sharply again in April.

Advertisement

According to Infaoliva’s price obser­va­tory, the aver­age price at ori­gin for extra vir­gin olive oil was €5.25 per kilo­gram at the begin­ning of January. It rose to just €5.30 after the first two weeks of April.

However, prices have since shot up to €6.05 per kilo­gram. Virgin and lam­pante olive oil prices have also fol­lowed a sim­i­lar tra­jec­tory.

Due to the drought, pro­duc­tion reached 660,000 tons in the 2022/23 crop year, down from 1.5 mil­lion tons in 2021/22. Spain’s lack of rain to date means that olive oil prices at ori­gin will con­tinue to rise.

Analysis from CaixaBank, Spain’s third-largest lender, indi­cates that the ongo­ing drought will result in pro­duc­tion short­ages across var­i­ous other crops and push domes­tic food prices in the com­ing months.

While cur­rent gov­ern­ment poli­cies have pro­vided some relief for con­sumers, how these poli­cies will evolve in the future remains uncer­tain ahead of the 2023 gen­eral elec­tion in the autumn.

No polit­i­cal party has made any promises con­cern­ing the grow­ing prob­lems faced by the country’s olive oil sec­tor, with most promis­ing to pro­vide more fund­ing with­out address­ing the under­ly­ing issues, includ­ing cli­mate change and stub­bornly high input costs.

There is also uncer­tainty whether the VAT tax cut, which is sched­uled to end on June 30th, will be renewed.

“This month… infla­tion, with a sig­nif­i­cant decline in the core com­po­nent, has begun to show signs of mod­er­a­tion,” Oriol Aspachs, the direc­tor of the Spanish econ­omy at CaixaBank, wrote. ​“Over the com­ing months, the Spanish econ­omy will have to con­tinue to nav­i­gate an adverse and com­plex inter­na­tional envi­ron­ment.”

More articles on:  , ,

Advertisement
Advertisement

Related Articles