The Impact of Rising Inflation on the Economy
During the month of March, inflation has experienced an increase of 4 tenths, reaching 3.2%. This increase has been attributed to the reestablishment of the VAT on electricity, which has gone from 10% to 21% since February, after having been reduced since June 2021. This rebound was expected due to the withdrawal of government measures against the price crisis , which intensified with the Russian invasion of Ukraine.
Context of Normalization of Energy Prices
In the current context of normalization of energy prices, the reestablishment of VAT on electricity prior to June 2021 has had an inflationary effect. In addition, an acceleration in fuel prices has been observed, especially notable in the middle of Easter.
Impact on Food and Underlying Inflation
Despite the increase in inflation, food prices have continued to moderate in March, maintaining the trend of recent months. Core inflation, which excludes unprocessed food and energy itself from its calculation, has decreased two tenths in March, reaching 3.3%, the lowest rate in the last two years.
Impact on Homes and Consumption
The moderation of food inflation is especially relevant for households with less income, since purchases in supermarkets or stores represent a higher percentage of total spending in these cases. The VAT reduction on basic foods remains in force, at least until June, along with discounts on public transport, which is a relief for households.
Recovery of Purchasing Power and Challenges
The moderation of the price crisis, together with improvements in salaries and pensions, is allowing families to recover part of the purchasing power lost in recent years, which in turn translates into economic growth. However, challenges persist such as the inaccessibility of housing, especially in large capitals, and inequality.
Impact on Businesses and Future Risks
Companies have passed on rising costs to the prices families pay to protect their profit margins. The main current risk to inflation is the impact of the conflicts in Ukraine and Gaza on energy prices and global trade.
Monetary Strategies and Policies
Currently, the European Central Bank’s strategy of ‘taming inflation’ with interest rate increases is being questioned, especially considering the concentration of price increases in some sectors. The impact of the wars in Ukraine and Gaza on energy prices and global trade also poses significant challenges.