Households living in Portugal bought significantly less food in 2022 (the biggest cut ever), but the value of household food bills rose at a record pace due to rapidly rising inflation, reaching the highest value of the official series , the National Institute of Statistics (INE) reported yesterday.
In other words, there are unequivocal signs that many families – especially the poorest, with lower disposable incomes, and those most vulnerable to rising interest rates because they have bank debt that increases with interest rates rising – are really being cut back on food to save some more.
This is what indicates the break in volume. According to INE’s new year-2022 National Accounts high, food spending would still have fallen had it not been for inflation.
The real drop (excluding inflation) was 2.3%, the highest of the institute’s official series, dating back to 1995. It is the equivalent of 573 million euros less in food compared to 2021.
It is necessary to go back to the leading years of the PSD-CDS government and troika adjustment program to find a reduction in real food spending. But even then it wasn’t that big: they fell by 0.7% in 2011 and 1.3% in 2012, according to INE.
In terms of value, the bill naturally shot up, and with more expression between the second and fourth quarters of last year. Russia’s war against Ukraine began on February 24, 2022.
For example, the amount spent by resident households increased by no less than 9.7% (at current prices, already with the effect of inflation), reaching the highest value of this series: almost 29 billion euros in 2022, says INE.
But the economy grew strongly anyway, almost 7%
The economy as a whole grew enormously. “Over the whole of 2022, GDP (gross domestic product) grew by 6.7% in volume [em termos reais, descontando a inflação]the highest since 1987, after the 5.5% increase in 2021 that followed the historic decline of 8.3% in 2020, due to the negative effects of the pandemic on economic activity,” says INE.
In terms of value (at current prices, with inflation), the Portuguese economy naturally grew in size, and also at the fastest rate since 1996, at least (11.5% more), an expansion largely explained by rising prices, it is possible to temporarily increase the turnover of companies, the value of the traded goods and services, and also the taxes and contributions included in the internal value added.
Domestic demand made a significant positive contribution to GDP growth, albeit lower than last year, with private consumption accelerating and investment decelerating.
Duality in household consumption
Total private consumption therefore even increased. What happened? While real spending on food fell, household spending on durable goods (which tend to be bought more by higher income groups, who are more protected against the impact of inflation) rose by almost 12%.
Real spending on other common goods (non-food) and services also performed well, rising 7.4% in 2022, says INE.
This consumption behavior compensated for the setback in the food segment, where private consumption grew by 5% last year.
In addition, “the contribution from net external demand turned positive in 2022, with exports of goods and services accelerating more than that of imports of goods and services”.
Total exports showed the highest increase in the INE series (16.7%), above the pace of imports (11%), despite the energy shock that sent the price of oil and gas soaring.
The most unfavorable note, so to speak, goes to investment (GIF – gross fixed capital formation), which slowed down from 8.7% in 2021 to just 2.7%.
Investment in construction nearly stagnated (0.8%), but the transportation equipment segment ultimately saved face from this GDP aggregate, rising nearly 10% in real terms last year.
Quarterly data, also revealed yesterday by INE, shows that fixed asset investment (new investment) was practically stagnant in the last quarter of 2022 compared to the same period of the previous year.
And that total investment (including the variation in inventories, an indicator that shows the increase or decrease in value of capital goods in storage) began to decline towards the end of the year.
This GDP aggregate has not contracted since the pandemic, when the economy came to a near standstill after a severe and historic recession.
Teresa Gil Pinheiro, economist at BPI’s research division, notes that “domestic demand contribution declined by 1.1 percentage points (pp) compared to 2021, to 4.7 pp, due to the sharp slowdown in GFCF , mainly in machinery and construction”.
“In turn, private consumption – which accounts for 65% of GDP – grew by 5.7%, 3 percentage points higher than in 2021, driven by the recovery in consumption of durable goods, namely in the automotive component and also of a slight acceleration in spending on non-food goods and services,” the analyst said in a brief explanation of the INE data.
The economist also notes that “expenditure on food products has contracted by 2.3%” and that “on the one hand, the behavior of the various components of private consumption demonstrates the impact of inflation on the expenditure of lower-income households – a contraction in food consumption – and, on the other hand, the noticeable concentration of surplus savings in higher-income households, allowing them to be used for the purchase of other goods and services”.
Inflation is softening, but not in food
Yesterday INE also published new figures on inflation. This remains above 8%, but shows signs of slowing down. “The year-on-year rate of change in the consumer price index (CPI) will have declined for the fourth consecutive month to 8.2% in February 2023, a rate lower by 0.2 percentage points (pp) than observed in the previous month.”
But, continues INE, “the underlying inflation indicator (total index excluding unprocessed food and energy) will have accelerated to a variation of 7.2% (7% in the previous month)”.
If, on the one hand, the year-on-year rate of change of the energy products index fell to 2% in February (5.1 pp less than the same value as in January), food costs show no signs of calming down. “The index referring to unprocessed food products will have accelerated to 20.1%,” says INE. In January the increase was still 18.5%.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
