Bank of Spain predicts reprieve for shoppers

Spain predicts relief for consumers

The cost of living. Credit: Sunflowerey/Shutterstock.com

Could the tide be turning for food prices? According to the Bank of Spain, a gentler increase is anticipated, providing welcome relief for households across the nation.

On a backdrop of fluctuating costs and policy changes, the Bank of Spain‘s Quarterly Economic Report, released before the final Consumer Price Index (CPI) figures for February, presents a promising outlook for the coming years.

This projection was made in the shadow of the smallest hike in food prices seen in the last two years since the onset of the Russian invasion of Ukraine, which had previously driven costs to significant highs.

Impact of VAT changes and input costs

The report indicates that the cost of essential goods will face upward pressure from June, following the cessation of the VAT reduction implemented by the government.

This comes after a period where food prices surged, notably affecting fruits, vegetables, and olive oil due to adverse weather conditions.

In January the price of food and non-alcoholic beverages increased 7.4 per cent year-on-year, one-tenth more than in December, as noted by the Bank of Spain, highlighting the resilience of prices despite external pressures.

However, a silver lining emerges as the costs of key production inputs such as energy and fertilizers have started to decrease. This reduction in production costs is expected to positively influence food prices, offering some relief to consumers.

Future projections and consumer impact

Looking forward, the report forecasts a moderation in the rate of food price increases, with an emphasis on the effect of the VAT adjustment in July.

The adjustment will see the VAT on basic food items revert to 4 per cent from 0 per cent, and from 5 per cent to 10 per cent for other specified goods.

At Funcas, the Savings Bank Foundation, they calculate that with the recovery in July of the usual VAT rates on food, the annual CPI rate would increase by four tenths, suggesting potential impacts on the overall inflation rate.

The Bank of Spain’s revised outlook for 2024 predicts a general inflation rate of 2.7 per cent, a significant drop from the previous year’s projection.

This adjustment reflects the easing energy price pressures and the continuation of certain anti-crisis measures.

The Bank of Spain’s report shines a light on the path towards stabilisation, offering hope for more manageable living costs in the near future.

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Written by

John Ensor

Originally from Doncaster, Yorkshire, John now lives in Galicia, Northern Spain with his wife Nina. He is passionate about news, music, cycling and animals.

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