Consumer prices in Spain rise to highest level in 30 years

by Lorraine Williamson
consumer prices

MADRID – Never since 1992 have consumer prices in Spain risen so much in one calendar year. And although consumer prices in Spain are now 6% higher than a year ago, inflation fell by 0.5% compared to December. That is the first decline after 10 consecutive months of increases.  

This is according to data from the Spanish National Institute of Statistics (INE). The current price rises are due to a combination of factors. The most important of which is the drastic increase in electricity prices, a phenomenon that is occurring all over Europe.  

These products became significantly more expensive 

After the rise in electricity (+72%) and fuels (+45.4%), the biggest increases concern the prices of basic products in every household’s shopping basket. For example, olive oil was 30.5% more expensive than a year ago, mutton and goat meat rose 21.8%, and pasta 15.2%. Fresh or frozen fruit became 9% more expensive. 

Three ways of reacting 

Spanish consumers are reacting to this high inflation rate in three ways. Firstly, by looking for cheaper suppliers, but this can be difficult in smaller cities. Secondly, consumers are looking for alternative products. Therefore, private labels are the most likely, as they have become increasingly valued by consumers in recent years. A third option is to stop buying products where the price is no longer in proportion to the pleasure.  

New method of calculation  

Since January, the INE has radically changed the method of calculating the CPI. Every five years this happens. In order to monitor how consumer prices have developed, the INE tracks the prices of hundreds of goods and services in all autonomous communities. Specifically, the agency now monitors 199 products and services. In the methodology established in 2016 it was 221. CDs and DVDs and CD and DVD players have been removed from the list.  Meanwhile mouthpieces and online press subscriptions are included in the index for the first time.  

Criticism of CPI calculation 

It is notable that the INE measures electricity prices in the same way, even though several experts have called for a change. With the current methodology, the INE calculates the electricity price based only on the accounts of consumers in the regulated market – about 40% of all households – but leaves out consumers in the free market due to the lack of information from marketers. One of the criticisms of the way electricity is measured in the CPI is that consumers who buy energy in the regulated market pay according to the wholesale market. In the free market, annual fixed tariffs are the norm. The tariffs are revised from time to time.  

By not including the free market, the electricity component of the CPI may be overestimated. There, prices rose less than in the regulated market. This has had a major impact on the overall index in recent months and has led to the overall CPI reflecting price increases that are slightly higher than would be recorded if all electricity consumers were included. 

Inflation drop 

The fact that inflation has fallen has to do with movements in the wholesale electricity market. In January, the average wholesale price of electricity was €201.72 per megawatt hour (€/MWh). This is more than three times as much as in January 2021, but lower than the 239.2 €/MWh in December,. This was the month with the highest energy bill in history. The fact that the electricity bill in January 2021 was significantly higher than in the last months of 2020 also helps to explain the price reduction. While the general price index fell compared to December, core inflation – an indicator that excludes the more volatile prices of energy goods and unprocessed food – rose again, now for seven months in a row. It now stands at 2.4 %, the highest value since December 2012.  

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