Why is Portuguese almost twice as long as Spanish?
Year-on-year rate of change in December was 9.6% in Portugal and just 5.8% in the neighboring country. Moat began to widen in late summer
Prices rose in Portugal at a much higher rate than in Spain in the last months of 2022. Part of the explanation lies in the way in which the statistical institute in the neighboring country takes into account the evolution of electricity prices.
The colony’s year-on-year rate of change in Portugal slowed down in December, to 9.6%, three tenths less than that recorded in the previous month, according to the INE’s quick estimate. In the neighboring country, braking was even more significant, dropping from 6.8% to 5.8%, the lowest value in 13 months.
The pace of price increases in Spain was, in the last month of 2022, 40% lower than that recorded on this side of the border. The gap was dug from the end of summer. If in the neighboring country it had a peak in July, at 10.8%, decelerating rapidly from September onwards, in Portugal the peak must have been registered in October, at 10.1%, without any expressive relief since then (only five tenths).
Inflation in Spain closes the year well below that of Portugal
What explains this gap between the two countries of the Iberian Peninsula? The Spanish INE’s quick estimate for December does not discriminate the evolution of the different components of the price index, so it is necessary to go back to previous months. In September, October and November, work in Batalha is mainly explained by the housing component, in particular energy costs.
In November, the year-on-year change in this class was just 1% in Spain, against 18.46% in Portugal. The distance began to be drawn in October, when the housing index in Spain dropped by 11 and a half percentage points to 2.6%, while on this side of the border it accelerated to 18.49%. That month, a sharp reduction in VAT on gas also came into effect in Spain, from 21% to 5%the same applied to electricity, until the end of the year.
Coverage in food products is also accelerating in the neighboring country, reaching 15.3% in November, but less than in Portugal, where this class recorded a year-on-year change of 19.96%.
Another factor to take into account is the base effect, since prices in the last months of 2021 were already growing at a faster pace than in Portugal. In the last month of that year, the counterpart was 6.5% in Spain and only 2.74% in Portugal.
A matter of methodology?
El Economista stresses, in a article published in november, the role of the Iberian mechanism for limiting gas prices, and therefore electricity, as one of the reasons that explains the difference compared to the counterpart in the Euro Zone, which was set at 10% in November. Portugal is also part of this mechanism, why do prices behave differently? This is where differences in analytics can play a role.
The Spanish INE includes the calculation of the price index (IPC) only for consumers who have contracts in the regulated market, around 40% of the total, whose tariffs depend on the daily evolution of the wholesale electricity market, therefore reacting quickly to the evolution of quotations . Unlike Portugal, where there is no regulated market where energy prices are more stable, on the other side of the border this happens in the free market.
The method, which is unique in Europe and was born controversy in spainhas the effect of accelerating the impact of the evolution of electricity prices on the CPI, whether when they rise or fall.
This means that in the neighboring country the so-called coexistence rate, which excludes the evolution of energy prices (which also include fuel) and unprocessed food products, is now above the CPI. Due to the interference of new classes of products and services, the underlying rate, which is the most valued by the ECB, rose in December to 6.9%. In this case, the difference for Portugal is minimal, with a quick estimate by INE pointing to 7.3%. And if we look at the half-guard in the last 12 months, the value in Portugal (7.8%) is even lower than that of nuestros hermanos (8.4%).
The latest forecasts from the Bank of Spain point to a rate of 4.9% in 2023, with the extension of most of the government’s fiscal measures approved last year. In the last week of December, the Executive of Pedro Sánchez announced a reduction to 0% of VAT on several essential products. According to the Bank of Portugal, the margin will be higher on this side of the border, estimating an average rate of 5.8%.