The Bank of Spain raises its CPI forecast for food by more than 4 points for 2023, up to 12.2%

"The price of food has not peaked", according to the general director of Economy and Statistics of the organization

MADRID, 22 Mar. (EUROPA PRESS) -

The Bank of Spain has revised upwards its average inflation forecast for food for 2023, from the 7.8% forecast last December to the 12.2% estimated now, as explained by the General Director of Economy and Statistics of the Bank of Spain, Ángel Gavilán.

On the occasion of the publication of its latest quarterly report on the Spanish economy, the institution has highlighted that the behavior of inflation at the beginning of 2023 has been marked by the measures implemented by the Government to contain the rise in prices, such as the VAT reduction for certain foods.

The agency calculates that in January this VAT reduction subtracted two tenths from general inflation. "This is consistent with a transfer of approximately 90% of the tax reduction to consumer prices, which is maintained in February," explained Gavilán.

It must be taken into account that the contribution of food to the general inflation rate in Spain is somewhat higher than in the euro area, due to its greater weight in the consumption basket of Spanish households -25.1% in 2022 compared to the 20.9%--.

In addition, according to the organization, the recent rise in food prices reflects the gradual transfer to prices of the cost increases that producers have experienced in recent quarters. "The price of food has not peaked", has assured the director of Economy and Statistics of the Bank of Spain.

Looking ahead to 2024, the Bank of Spain calculates that the average for food inflation would be 4.6%, compared to the 2.6% estimated in the last report, while in 2025 it would reach 2.9% --versus the 3.3% previously forecast--.

While the VAT reduction on some foods subtracted two tenths of a point from the general CPI for January, the suppression of the universal rebate on fuels added about seven tenths of a point to inflation, according to the institution.

At the same time, the Bank of Spain calculates that the incorporation of the part related to the free market in the measurement of gas and electricity prices carried out by the National Institute of Statistics (INE) added about four tenths to the CPI for January , while the annual revision of the weightings in the goods and services that make up the shopping basket added around three tenths.

Without the methodological change applied by the INE, "which has conditioned the behavior of clothing and footwear prices", core inflation "would have remained relatively stable" since mid-2022, according to the institution.

On the other hand, the Bank of Spain perceives a slightly slower transfer than in the past of market interest rates to the cost of new banking operations in Spain.

However, he anticipates that the impact of the rise in interest rates on the average cost of private sector debt -which has been limited up to now- will become more pronounced in the coming months.

In addition, it warns that the rise in rates will affect household consumption, with a heterogeneous intensity depending on the available savings and the type of home ownership.