The annual inflation rate rose by three tenths in January, reaching 3.4 percent, driven by the energy tax changes on electricity and gas. The increase moved from 5 percent, which had been in place for all of 2023, to 10 percent starting in January 2024. The National Institute of Statistics, INE, released the final Consumer Price Index data confirming what the agency had indicated at the end of January. It projected a January inflation rate of 3.4 percent and a drop of four tenths in the core inflation rate, which excludes the most volatile energy and unprocessed food prices, down from 4.0 percent in December to 3.6 percent. The group of non alcoholic foods and beverages showed a one tenths rise in its annual inflation, reaching 7.4 percent, with olive oil prices 62.9 percent higher than in January 2023.
Had the energy tax increases not been implemented in January, the inflation figure would have stood at 3.2 percent instead of 3.4 percent, based on the IPC with taxes kept constant as detailed by INE.
INE data show electricity up 9.4 percent in January and 9.6 percent year over year versus January 2023. Gas rose 8 percent from December, leaving a year-on-year variation of -19.7 percent compared with January 2023.
In the fuels and lubricants group, prices increased by 1.1 percent in January from December, and are 7.7 percent cheaper than in January 2023.
Overall, INE figures reveal a monthly rise of 4 percent in the energy goods category and an annual inflation rate of -2.3 percent (having been -6.4 percent in December).
The foods and non-alcoholic beverages group saw its annual inflation rate hold at 7.4 percent in January, up slightly from 7.3 percent the previous month. From the Economy Ministry’s perspective, the normalization path for foods continues, although prices remain high at 7.4 percent, and inflation has fallen by more than half in the past year from a peak of 16.6 percent last February.
Olive oil price rebound
The government extended, at least through June, the VAT reduction on certain staple foods. This extension helped limit a sharper January inflation increase.
In January, olive oil was 62.9 percent more expensive than a year earlier, compared with 54.6 percent in December. The food inflation rebound also reflected higher prices for fish and shellfish and for legumes and vegetables.
On the opposite side, the groups with the largest negative monthly impact on the CPI were clothing and footwear, down 10.7 percent due to winter sales, and leisure and culture, with a -2.1 percent rate driven by cheaper tour packages.
Government measures
The gradual withdrawal of energy tax relief introduced in June 2021 to counter higher energy costs, sharpened by the Ukraine conflict, is behind the January inflation uptick. The research service at Caixabank notes that tax effects on inflation should be temporary and not derail the downward trend seen in recent months.
On December 27, the Council of Ministers approved a stepped tax increase on energy to restore pre-crisis levels: electricity VAT rose from 5 percent to 10 percent for all of 2024; the Electricity Special Tax rose from 0.5 to 2.5 percent in the first quarter and would reach 3.8 percent in the second quarter; and the Electric Power Production Tax rose to 3.5 percent until March and would move to 5.25 percent until June. For natural gas supplies, the VAT stands at 10 percent for the first three months of 2024, returning to the pre-crisis level of 21 percent afterward.
Additionally, the government decided to extend, at least through June, the reduced VAT on certain basic foods. Staples such as bread, eggs, and milk will continue to be taxed at 0 percent in the current semester. Likewise, flours, cheeses, fruits, vegetables, legumes, potatoes, and cereals. The reduced rate on certain oils will be reduced further, down to 0 percent, as part of a parliamentary agreement with Junts.
By regions
Regionally, January saw positive annual inflation rates across all autonomous communities, with the Canary Islands recording the highest at 4.0 percent and Madrid the lowest at 2.7 percent. In Catalonia, the monthly CPI rose by a tenth from December, lifting the annual inflation rate to 3.3 percent, just under the national 3.4 percent.
For a homogeneous comparison with other European Union countries, INE estimates the Harmonized Index of Consumer Prices (HICP) at 3.5 percent in January, up two tenths from the prior month.
Food loses weight in the basket
INE also published this Thursday the annual update of weights used to calculate the IPC, following the 2021 base system methodology. The data come from National Accounts, the Family Budgets Survey, and other sources. The IPC thus reflects changes in consumer habits over the past year.
Although changes are modest, the new shopping basket shows lower shares for foods and non-alcoholic beverages (19.58% in 2023 to 19.16% in 2024), housing (12.68% to 12%), and medicine (5.98% to 5.79%). At the same time, transportation (13.80% to 14.38%), leisure and culture (7.87% to 8.59%), and hotels, cafes, and restaurants (13.24% to 13.93%) gain weight in 2024.