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Prices rose again in October, with an inflation rate of 1.8%, three tenths more than in September, according to the INE (Spain's national statistics institute) on Wednesday. The return of IVA (the sales tax on goods and services - VAT in the UK) being applied again to foodstuffs after the subsidy maintained on food basics since January 2023 came to an end has led to this upturn.
This rise highlights the fact that the inflationary crisis is not as under control as expected. On the one hand, the moderation in fuel prices is holding back inflation because the costs are much lower than a year ago, but the recovery of IVA on certain products in the shopping basket has pushed up the general inflation rate.
The underlying rate is also up one tenth of a percentage point from September, at 2.5%. It is considerably lower than October's 3.5% a year ago and the best figure since March 2021 - with the exception of September - but still higher than headline inflation, which continues to reflect that the less volatile items in the basket (excluding fresh food and energy products) have been holding steady for months.
It is almost two years since central government approved the elimination of IVA on basic products and reduced the tax rate on some others. This aid ended on 30 September, after which it will be gradually withdrawn until 31 December when all foods will return to their usual IVA rate except for olive oil, which will remain at a super-reduced rate of 4%.
Since 1 October, the IVA rate applied to olive oil and other basic products such as milk, fruit, vegetables, eggs and bread has risen from 0% to 2%. Similarly, the rate on pasta and seed oils (sunflower, rapeseed) has risen from 5% to 7.5%. It should be remembered that before the cabinet implemented the measure back in January 2023, the super-reduced rates applied to basic foodstuffs were 4%. Also olive oil, with an IVA rate of 10% at that time, was not included in the basics basket, something that is happening now and will be maintained when, in January 2025, IVA returns to pre-inflationary crisis levels.
The Spanish government has decided to adopt this measure with olive oil because its price rises have exceeded 50% for several consecutive months, with prices now at three times higher than they were two years ago. Some consumer associations have condemned this move, stating that now the price movements in this 'liquid gold' will depend on whether supermarkets take advantage of this policy to raise prices above the IVA increase.
We will have to wait until mid-October for the INE to publish the final, confirmed data together with the broader analysis of the CPI (consumer price index) by each category heading, with food as a key element. In September the situation with olive oil stood out because, for the first time since the inflationary crisis began, it had a product that was ahead of it in price. Surprisingly, the product in question was chocolate, which rose by 21% compared to the previous year, while olive oil rose by 10% after having recorded rises of over 60% in previous months.
Moreover, there were other foods that rose more than oil in September, such as juices (16%), cocoa powder (12%) and lamb/mutton (11%). Other food items that experienced the highest rises in the month were potatoes, 9% more expensive than a year ago, and fresh fish, with a 4% rise according to INE data for September, which will be updated in a fortnight.
The Bank of Spain expects annual average inflation to remain at 2.9%, one tenth of a percentage point lower than in its report three months earlier, although it raised core inflation to 2.8% precisely because of the withdrawal of food subsidies.
In monthly terms (October over September), the CPI has increased by 0.6 per cent over the previous month, its highest monthly increase since last April when it rose by 0.7%.
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