On December 27, the government announced a measure to cut the VAT on staple foods, slashing the rate to zero and reducing pasta and oil taxes from 10 percent to 5 percent. This plan was meant to last six months or until core inflation, which excludes volatile items like energy and unprocessed food, fell below 5.5 percent. Halfway through, the goal still seems distant as inflation remains stubbornly high.
Data from the National Institute of Statistics (INE) shows food prices rising sharply with a 15.5 percent increase in January and 16.7 percent in February. The March figures were not yet released at the time of reporting, but the Consumer Price Index (CPI) indicated a 0.4 percent month-on-month rise. Core inflation stayed elevated, slipping only from 7.6 percent to 7.5 percent, far above the 5.5 percent benchmark that would signal substantial relief.
Weighbridge’s final analysis of price trends, shared this week at the Food Chain Observatory, confirms a cautious outlook. In the first two weeks of March, roughly thirty food and drink categories showed continued price movement, with sunflower oil and some coffee varieties among the more notable exceptions. Overall, price increases persisted, pushing the March average to around 16.1 percent, driven by staples such as eggs, meat, olive oil, fruit, vegetables, beer, and juices—items that shape everyday budgets.
The Center for Economic Policy published an assessment noting that prices within the food group affected by the VAT cut reportedly fell in the week immediately after the measure became active, but later rebounded and approached last year’s levels. Economists from the center argue that the policy did not effectively target the core problem and may have inadvertently shifted public funds toward higher-income households.
Critics argue that the government’s initial approach was flawed. They say it was unwise to cap food prices through broad taxes, since the underlying issue is costs along the supply chain. A prominent voice from the Catalan Economists Association, Francesc Reguant, contends that the VAT cut and household subsidies fail to address meat and fish coverage comprehensively and carry limited impact on overall affordability. The concern is that public coffers absorb more, without delivering uniform relief across all essential foods.
Officials from the Ministry of Agriculture, Fisheries and Food suggest patience. They anticipate a gradual price decline as energy costs and production expenses stabilize over time. The ministry notes that fertilizer, feed, and energy together account for a large share of farm costs, and the trajectory of global food indices supports a slow easing. A recent report from the Food and Agriculture Organization of the United Nations also points to a recent downward trend in world food prices, aligning with domestic signals of a possible reduction in price pressure.
climate effect
The ministry also warned of climate-related factors behind the inflation uptick in February. Colder weather in late January and early February reduced yields of fruits, vegetables, and legumes, contributing to higher fresh-produce prices. There is also increased demand from Europe, with the Netherlands, a major supplier, seeing reduced greenhouse production due to elevated gas costs. In short, price dynamics are shaped by energy costs and farm input prices, and the climate picture adds a layer of complexity to forecasts.
Analysts agree that the situation is more nuanced than a simple supply-side story. They point to lingering effects from the pandemic and the Ukraine conflict, along with factors like avian flu and broader climate pressures. The takeaway is a more structural challenge: if production costs stay high and risk remains, policymakers may need to consider proactive measures to cushion periods of scarcity. Suggestions range from diversifying suppliers and protecting cross-border supply chains to improving risk management and investing in more resilient agricultural practices.