The start of 2024 has seen a resurgence in prices, as confirmed by the National Institute of Statistics (INE). In January, inflation increased by three tenths, reaching 3.4%. This increase was primarily driven by the rise in VAT on electricity to 10%. Additionally, the CPI for food also broke its downward trend, experiencing a slight rebound to 7.4% in the first month of the year.
After ending 2023 with an interannual rate of 3.1% in December, the rate of price increases accelerated in January 2024. This marked the first increase in the CPI in four months. The rise in inflation distances it from the European Central Bank’s (ECB) objective of 2% and brings it back to around 3.5%, where it remained stagnant in September and October. Although prices grew by 0.1% in January compared to December levels, the annual indicator is still far from the 5.9% rate recorded in January of the previous year.
The increase in inflation at the beginning of the year can mainly be attributed to the higher VAT on electricity, which doubled from 5% to 10% on January 1st. Consequently, electricity prices are now 9.6% more expensive compared to a year ago. In contrast, prices had become 40.8% cheaper in January 2023 when the tax cut was implemented to ease consumer burden. As part of the progressive withdrawal of anti-crisis measures, the government also raised the electricity tax from 0.5% to 2.5% at the beginning of the year. Without considering tax variations, the interannual CPI at constant taxes stood at 3.2% in January, which is below the general rate. This is a phenomenon that hasn’t occurred since June 2021.
The shopping basket did not provide consumers with any relief in the first month of 2024. Food inflation slightly increased in January, with an interannual rate that rose by one tenth compared to December. This halt in the moderation of the CPI for basic products comes after it reached a peak in February of the previous year at 16.6%. It is the first time the indicator has risen since July, when it was still in double digits. Despite the rebound, the January figure is the second lowest since the beginning of 2022, second only to the 7.3% recorded in December.
Olive oil continues to be the most expensive product, with its price increasing by 62.9% in the last year. Since January 2021, it has accumulated an overall increase of 176.5%. Fruit and vegetable juices follow closely, with their cost increasing by 21.6% since the beginning of 2023. Furthermore, the year-on-year increase in pork, fresh and chilled fruits and vegetables, potatoes, and cocoa exceeds 10%. On the other hand, skimmed milk, butter, and yogurt are between 0.2% and 4.1% cheaper than a year ago. The price of oils other than olive oil has also decreased by 25.3% since January 2023.
Lower fuel prices
In contrast to the rise in electricity and food prices, fuel prices have decreased, helping to offset the inflationary impact. Specifically, natural gas, butane and propane, and liquid fuels have become cheaper by 19.7%, 14.4%, and 13.1% respectively since January 2023. Similarly, the price of diesel has fallen by 7.5% and gasoline by 1.7% in the last year.
Excluding energy and unprocessed food prices – due to their high volatility – core inflation continued to decrease in January for the sixth consecutive month. Core inflation moderated to an interannual rate of 3.6%, its lowest level since March 2022. The gap between the general index and the underlying index is the smallest it has been since November 2022.
Forecasts for 2024 suggest that inflation will remain close to the levels recorded in January. The European Commission revised its forecast downwards, estimating that prices will grow by 3.2% this year. Similarly, the Independent Authority for Fiscal Responsibility (AIReF) projects a 3.3% increase, following a reduction in its estimate last month due to the moderation in prices observed towards the end of 2023 and the partial extension of some anti-crisis measures.