Even tax cuts struggle to curb the rise in the grocery bill. A 0.2% uptick in food prices in Alicante last January exposed the limited impact of the government’s VAT cut on food items. Supermarkets point to higher upstream costs, while consumer groups argue that certain links in the distribution chain are squeezing extra profit. Regardless of who’s right, the trend helped push inflation down only marginally, while energy, clothing, and footwear prices fell, contributing to a modest overall easing in inflation.
There was broad hope that reducing VAT on basic foods such as eggs, dairy, and fruit would ease household budgets. Since January 1, staples like oils and pasta enjoyed a VAT cut from 10% to 5%. Yet data from the National Institute of Statistics (INE) showed that cart prices continued to climb that month, with the region posting a notable year-over-year rise.
So what’s driving the price of food higher? Pedro Reig, director of the Valencia Community Supermarkets Association (Asucova), notes that most items affected by the VAT reduction still experienced price declines. He cites fruit down 4.2%, flour down 2.3%, milk and eggs down 1.5%, potatoes down 1%, cheese down 0.7%, and bread down 0.2%. He raises questions about why these decreases didn’t translate into larger overall savings and urges a closer look at rising costs at the source. The trend has been persistent for roughly a year, with early-year signals continuing that path.
Reig also points out that upstream cost increases affect other foods not covered by the VAT cut. The Consumer Price Index (CPI) reflects these movements. He emphasizes that only about 1,000 of nearly 8,000 supermarket references benefit from the tax relief, underscoring the limited reach of the measure.
Cecilio Nieto, president of the Alicante Consumers Union, voiced disappointment with the outcome and suggested the broader market signals may be misaligned. He argued that food prices would have risen even more without the VAT reduction being mediated, but he also sensed market manipulation in the distribution chain. Nieto called for stronger regulatory action, noting that many families are enduring difficult times while prices and margin pressures persist.
Despite the slowdown in food-price gains due to the VAT cut, inflation rose to 5.9% in January.
January’s CPI data showed a 2.8% rise in non-alcoholic beverages and a 3.2% rise in alcoholic beverages, excluding food. Electricity, gas, and other fuels dropped sharply, by 13.1%. Clothing prices surged by 15.3%, and footwear costs rose 5.6%. Tourist packages fell by 13.5%, a sign of shifting consumer priorities. Overall, inflation eased slightly from the prior month but remained above 6% compared with a year earlier.
The broader trend mirrors what’s seen across the country, with month-to-month inflation up 0.3% in food but down 0.2% overall. In the Valencian Community, cart prices rose at roughly the same pace as the national average, while the CPI dipped by about 0.3%.