95.3% of Spanish Companies Rule Out Price Cuts Before the Summer

The months in which inflation in Spain was close to double digits are behind. But prices continue to rise month after month and are not expected to stop doing so. Only 4.7% of Spanish companies expect prices to fall in the second quarter of this year. 23.1% believe that the price level will increase and 72.2% believe that it will remain stable. These are data from the harmonized business confidence index (ICEA) published by the National Statistics Institute (INE), which shows that 95.3% do not expect price reductions in the coming months, before the summer.

The consumer price index (CPI) closed March at 3.3%, a significant moderation compared to February’s figure of 6% and explained by the year-on-year comparison with the month in which the Ukrainian war broke out in 2022. Year-to-date, however, prices have risen by 1.1%.

This explains why the number of business establishment managers who believe prices will increase has fallen by more than 10 points from the first quarter survey. On the flip side, the percentage expecting price levels to decline between April and June has fallen by almost two points, from 6.4% to 4.7%.

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Cost pressure is taking a toll on almost 400 Spanish companies in the food industry

By sector, the most pessimistic are managers in the retail sector. A total of 31.2% expect prices to rise, compared with 21.7% who believe that prices in the industry will rise. If we look at the evolution of energy prices, which has a great impact on the industrial sector, we can see a decrease of 25.6% between March 2022 and the same month of this year. This behavior of energy products may explain why the industry is slightly more optimistic.

The most optimistic sector – in terms of the consumer – according to this survey, is the transport and hospitality sector. Seven percent of those surveyed expect prices to decrease this quarter. Compared to last year, transportation and hospitality prices increased by 8.2% in March.

By company size, the largest companies, with 1,000 or more employees, are betting on price stability (83.6%). This percentage drops by 20 points if the same question is asked of micro-SMEs with fewer than 10 employees (68.6%).

The food industry is holding up

Despite the moderation in prices reported in March, the fact is that basic products continue to increase in price month after month. To give some examples, milk has risen by 30.4%, meat by between 10.3% and 19.6%, and fresh vegetables were 27.8% more expensive in March.

In December, the government approved the elimination for six months of VAT on basic foodstuffs which until then were taxed at a super-reduced rate of 4%. These are bread, flour, milk, cheese, eggs, fruit, vegetables, legumes, tubers, and cereals. However, this measure has not prevented very large price increases.

This week, the Vice-President of the Government, Nadia Calviño, acknowledged that there is “resistance” to food lowering prices, but ruled out additional measures and recalled those already implemented. “That resistance is our main concern at the moment because it affects precisely the welfare of Spanish families,” Calviño said.

With the improvement of macroeconomic forecasts by international agencies and data pointing to a very optimistic rate of job creation, inflation remains the main challenge of the Government in economic matters.

Lower energy and other commodity prices should start to be passed on to the consumer in the coming months, according to the government. However, the drought weather situation may put that pass-through in check, as this newspaper reported. “We hope that if the drought situation does not throw extreme situations, the moderation of costs will be reflected in prices,” said this week the Secretary General of Agriculture and Food, Fernando Miranda.

Business optimism

However, the business confidence index has risen by 2.7% compared to the previous quarter. 20.6% of the establishments believe that these months will be favorable for their business and 62.2% believe that it will be “normal”. The improvement in expectations occurs in all sectors. In transport and hotels and restaurants, the increase is 5.9%, commerce, 3.6% and industry, 3.2%. Construction is up 1.8% and other services are up 1.2%.

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(Featured image by stevepb via Pixabay)

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First published in EL INDEPENDIENTE, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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