The National Institute of Statistics (INE) faces a delay in overhauling how electricity price changes feed into inflation calculations to reflect actual household consumption in Spain. The planned shift to calibrate electricity prices was set for January 2022 but has not taken effect, and it will not arrive alone. INE is also preparing to adjust how gas prices paid by Spanish households are measured in the same reform.”
The agency intends to modify the base used for calculating the consumer price index (CPI) so it can track the evolution of regulated electricity and gas tariffs, while also incorporating free market rates that have dominated both energy markets in recent years. Historically, inflation was not derived from these price movements. Official INE statements indicate that all tariff types for electricity and gas will be included simultaneously when calculating inflation.
The original plan was to finalize the electricity price measurement reform last January, but the timetable slipped as electricity companies did not provide the price data required to compute the CPI. Since April, Endesa, Iberdrola, and Naturgy have been supplying monthly information on the regulated electricity tariff and the prices paid in the free market. Industry sources confirm that these firms have also been sharing data for three consecutive months on any natural gas tariffs affecting their customers.
Adjusting CPI calculation data could push inflation higher in the short term. The government has managed to keep inflation relatively muted within the euro area through measures aimed at stabilizing increases in electricity, gas, and fuel prices.
Upside effect
For gas, regulated tariffs known as the last resort tariffs (TUR) benefit from government support worth millions and will remain substantially lower than free market gas prices for the entirety of 2023. Shifting to include more expensive free tariffs in the inflation measure is expected to raise measured inflation relative to today.
The government has rolled out a multi-million euro package to lower gas bills for more than three million homes, spurring a large number of customers to switch suppliers and boosting market activity. A 3,000 million euro shield is designed to keep regulated gas tariff increases in check for 2023, protecting around 1.5 million customers. In addition, a new fee will halve bills for 1.7 million homes with central heating in neighboring communities. Gas VAT reductions from 21% to 5% apply to all tariff types in the package.
INE notes that gas carries a smaller weight in the CPI, while electricity carries a heavier one. During the energy crisis, the regulated electricity tariff often reached peak prices, standing well above free market tariffs. Consequently, electricity’s contribution to inflation has been amplified by the fact that only about 40% of consumers remain with the regulated rate, PVPC, in many periods.
After the Iberian exemption took effect, the annual contract review saw the regulated electricity tariff become cheaper while free market tariffs rose. As a result, the CPI change in electricity pricing is likely to push inflation higher than prior levels.
INE has not yet confirmed a firm implementation date for the reforms. In planning a CPI energy price update for early 2022, the best scenario in principle is to begin with a new formula in January and base computations on a full calendar year. Official sources emphasize the need to secure accuracy and comprehensive coverage from energy companies before finalizing the revised methodology, ensuring the new process is fully reliable from the outset.