Inflation climbs to 5.8% in the first month without a discount on gasoline despite the cut in VAT on food

The INE includes for the first time the evolution of the price of electricity and gas in the free market and modifies the structure of spending: less budget for food and household expenses

• Inflation and plastic tax dilute Sánchez’s VAT cut

The CPI rose 5.8% year-on-year in January, one tenth more than in December, due to the impact of the end of the fuel rebate and despite the VAT reduction on basic foodsas the National Statistics Institute (INE) announced this Monday and will have to confirm in mid-February.

The core inflation, which does not include the price of fresh food and energy products, nevertheless rose a 7.5%half a point more than in December, demonstrating the widespread contagion of the rise in prices to the entire consumer basket.

in terms monthlycomparing the prices of January with those of December, there was a drop of 0.3% and, in the underlying rate, a cut of 0.2%.

January has been the first month in which the bonus of 20 cents in fuels -gasoline and diesel- has not been in force since June, which has pushed up the price of these elements and has contributed positively to raising prices. However, this effect has been offset by the impact that the food VAT reduction staples, which has reduced the price of daily consumption products such as bread, milk, eggs, fruit,

Today’s data is the first published by the INE with the new composition of the consumer basket which is used to calculate the evolution of prices and which is modified annually in January to reflect changes in consumer habits in Spain. This implies that, depending on what is purchased, they include some new products o Its weight increases with respect to the total (for example, in 2021 masks were included) and others are removed or the proportion that households no longer acquire is reduced, as is the case with some technological elements that become obsolete, such as video tapes.

As reported by the Institute, “the CPI for January 2023 used for the first timeweights from the National Accounts and incorporates free gas and electricity markets”, something that different study services had been demanding for a long time because omitting that information distorted the inflation data. The incorporation of these data, they point out, has the endorsement of the community statistics agency Eurostat.

“The rates considered up to now for the calculation of the indicator refer exclusively to the regulated market. However, due to the changes that have taken place in the sector in recent years, it was considered necessary to incorporate the free market to adequately represent the evolution of prices in the sector. This expansion of coverage could not be undertaken in the year 2022 due to the fact that the information was not available with a sufficient level of detail, nor with the necessary technical criteria that would allow the application of a methodology consistent with the requirements demanded in the calculation of the CPI”, explains the INE in a statement.

The changes in consumption introduced by the INE will alleviate the CPI

Another of the changes is that to determine what percentage of their income each household dedicates to the consumption of each type of goods and services, the Household Budget Surveywhile from now on the information from the National contability, as stipulated by the European Commission in Regulation 2020/1148.

Font change has been used to modify the cost structure as follows: It has been cut of 22.6% to the 19.6% the proportion of the budget family destined to the purchase of foods and non-alcoholic beverages, which will be a relief for the CPI as food is the product that rises the most; and it is cut from 14.2% to 12.7% the quota allocated to housing expenses (electricity, water, etc.), which will also contribute to the drop.

It also cuts the quota for dress and footwear (from 6% to 4%) and spending on communications (from 3.6% to 3.2%).

On the contrary, it raises from 3.1% to 4% the proportion of spending allocated to alcoholic beverages and tobacco; spending on medicine rises from 4.4% to 6%; from 13% to 13.8% the budget allocated to transport; from 6.4% to 7.9% spending on leisure and culture over the total; from 1.6% to 2% that allocated to teaching; and from 13% to 13.2% the budget for hotels, cafes and restaurants.

In addition, INE officials who until now manually compiled price information throughout Spain will be freed from part of that work as the intensification of the price collection by means of electronic deviceseither through databases provided by companies or through automated collection over the Internet.