MADRID – Although we all already pay considerably more for our food, the Bank of Spain foresees a further increase in prices. The institution raises its food CPI forecast for 2023 by more than 4 points.
The conclusion is that the increase, which has already been strong in the past year, “has not reached a peak”. For months now, every consumer has noticed what the CEO of Spain’s largest supermarket Mercadona referred to during the presentation of the annual figures on March 14: “we have raised prices considerably”. And that does not only apply to the Mercadona.
However, what is set to happen in 2023 is not encouraging. The Bank of Spain raises its food CPI forecast for 2023 by more than 4 points. This is now 12.2% and has issuing a serious warning for the coming months.
“The price of food has not peaked,” assured Ángel Gavilán, director of economics and statistics at the Bank of Spain. He has revised the average inflation forecast upwards from 7.8% last December to 12.2% now.
His department calculated the VAT reduction for certain essential foodstuffs in January deducted two-tenths of a percentage point from headline inflation. According to the institution, the recent increase in food prices reflects the gradual pass-through of cost increases that producers have had to pass on to consumer prices in recent quarters in order not to lose too much of their margins.
Looking ahead to 2024, the Bank of Spain calculates that average food inflation will be 4.6%. The latest report estimated a further 2.6%. In 2025 it would reach 2.9% – as opposed to the previously predicted 3.3%.
The price of gasoline
The VAT cut on some foods subtracted 0.2% from the headline CPI for January. However, the elimination of the universal rebate on fuels added about 0.7% to inflation, according to the institution.
The Bank of Spain sees a slightly slower pass-through from market interest rates to the costs of new banking activities than in the past. However, the entity expects that the impact of the interest rate increase on the average private debt will increase in the coming months. The institution also warns that the rate increase will have consequences for household consumption.