Even with tax reductions, the rise in shopping costs continues. In Alicante, food prices climbed by 0.2 percent in January, underscoring doubts about the impact of the government’s VAT cut on food products. Supermarkets point to higher costs at the source, while consumer groups suggest some middlemen are squeezing extra profits. Regardless of the debate, food inflation stands in contrast to the notable falls in energy, clothing, and footwear prices, which helped shave inflation by around 0.1 percent.
Many expected VAT relief for staple items such as eggs, dairy products, and fruit, which have been exempt since January 1. Oils and pasta also dropped from 10 percent to 5 percent on the same date. Yet data from the National Institute of Statistics indicate that total shopping cart prices continued to rise that month, marking an annual increase of 16.1 percent in the province [INE data].
What drove the price increases for food? Pedro Reig, Director of the Association of Supermarkets of the Community of Valencia (Asucova), notes that most products affected by the VAT reduction did experience price decreases. He points out that fruit costs fell by 4.2 percent, flour by 2.3 percent, milk and eggs by 1.5 percent, potatoes by 1 percent, cheese by 0.7 percent, and bread by 0.2 percent. He calls for a thorough examination of why these reductions were smaller than anticipated given the drop at the source and emphasizes that the upward trend has persisted for a year and a half. There is a sense that the cost pressures at the source are feeding through to consumers despite the VAT relief.
Reig adds that higher costs from upstream suppliers also impact items not covered by the VAT reduction, as measured by the Consumer Price Index (CPI). He stresses that only about 1,000 of nearly 8,000 supermarket references benefit from tax relief and urges closer scrutiny of market behavior to prevent hidden profit taking in the distribution chain.
Cecilio Nieto, President of the Alicante Consumers Union, expressed disappointment with the outcome and made clear his disagreement with the prevailing view. He suggested that prices might have risen even more without the VAT cut. Beyond upstream cost pressures, he argued there is a sense of market manipulation, calling on authorities to take stronger action rather than settling for a quick fix because many families are facing real hardship.
Inflation still edged higher in January despite the VAT relief on food.
January’s CPI showed a 2.8 percent rise in non-alcoholic beverages and 3.2 percent in alcoholic beverages, excluding food. Electricity, gas, and other fuels fell sharply, by 13.1 percent. Clothing prices jumped 15.3 percent, while shoe prices rose 5.6 percent. A 13.5 percent drop in travel package prices also stood out. All told, inflation eased slightly from the previous month but remained more than 6 percent higher than a year earlier.
The national picture mirrors the regional pattern. Inflation rose 0.3 percent month over month in food, while overall inflation dipped 0.2 percent. In the Valencian Community, shopping cart prices increased in line with the national trend, even as the CPI declined by 0.3 percent.