Without surprise Liechtensteinand Switzerland are the countries with the lowest inflation rate in Europe, 2.5% and 3.4% respectively. The worst inflation is Turkey with a whopping 79.6%. Portugal sits reasonably comfortably at 9.1%, lower than Spain at 10.8% and of course the UK at 10.1%. The European average is 9.8%. Of course, these numbers are just statistics, how does inflation affect your life?
Needless to say, one of the biggest factors is the cost of fuel, which affects everything from your personal travels to things like delivering goods to your local store.
A good thing is that fuel retailers in Portugal seem to follow wholesale prices much faster than in the UK, for example. Petrol stations in the UK quickly increase their prices when the wholesale price increases. Reducing when prices fall is quite another matter. Consumer magazine, ‘Which’, found that the petrol station was pocketing around £25 in profit on each tank filling by delaying the wholesale price.
If you look at the records from Portugal, the lowest price per liter of diesel was €1 per liter in January 2015. The highest was €2.09 per liter in July this year. Unleaded was €1.05 per liter in January 2015 while it peaked at €2.17 per liter in June this year. Prices have been falling since this peak, diesel around €1.70 per liter and unleaded around €1.80 per liter (depending on where you buy). Prices closely follow the wholesale market with very little lag.
Gas and electricity
Here the picture becomes quite confusing. Recent headlines claimed that we should expect a more than 40% increase in household fuel costs. So far, that doesn’t seem to be happening. Anyone who watches the news in English knows that British consumers are devastated by the dramatic rise in energy prices.
Britain’s Office for National Statistics said this week that UK natural gas prices rose nearly 96% in the year to July, while electricity prices rose by 54%. CNN reported, “The worst is yet to come. Average annual energy bills could exceed £4,000 from January and £5,000 later in the spring, up from around £2,000 currently. Millions of people could be forced into poverty as a result. Leaders of the UK’s National Health Service warned on Friday of a “humanitarian crisis”. Many people could fall ill this winter as they “face the terrible choice between skipping meals to heat their homes and having to live in cold, damp and very unpleasant conditions”.
The crisis is not unique to the UK. The prices have shot across Europe since last fall, driven by a spike in demand as countries lifted pandemic lockdowns. Russia’s invasion of Ukraine in late February and the subsequent fall of Oil and natural gas exports from Moscow to Europepushed prices even higher.
Portugal and Spain act together as an “energy island”
The Spanish and Portuguese governments – both led by socialist prime ministers – had been calling on Brussels since last summer to implement measures to reduce electricity prices which have soared due to rising natural gas demand, supply chain issues and geopolitical tensions, including war. in Ukraine. The European Commission gave its agreement in April for an Iberian exception allowing Spain and Portugal to decouple the price of gas from that of electricity for the next 12 months.
Madrid and Lisbon had argued that the Iberian Peninsula should be allowed to cap prices at a maximum of €30 per megawatt-hour due to their weak interconnection with the rest of the bloc, describing themselves as an “energy island”. Both countries also have a much lower reliance on Russian gas – they mainly import from Algeria – as well as high renewable generation.
Renewable energy does not benefit you
While it was one of the most dependent EU countries (80% in 2010), Portugal has developed a renewable energy sector responsible for 65% of electricity production. But there is a catch. EU Member States trade electricity on a wholesale market based on a system called “marginal pricing”, which means that everyone gets the same price for the electricity they produce, regardless of the how this electricity is produced – renewable energy is produced at almost zero cost.
This means that the wholesale price is set by the most expensive mode of electricity generation. Solar power may be virtually free to produce, but it is sold at what can only be considered a huge profit. Wholesale energy providers make billions in extra profits. You can see solar farms popping up all over Portugal, but as regulations stand, it doesn’t benefit the consumer, only the environment.
How has inflation affected your shopping bill?
It’s not so easy to spot where the individual price increase occurs, but you notice it at checkout. The wine seems to have increased by about 11-15%. This may be mainly due to transport costs, a truck full of wine bottles is heavy and many of our domestic wines travel long distances to reach our supermarket shelves. Other assets are suffering from the various impacts of the current economic situation.
The Guardian recently reported that “sales from the world’s top four traders have soared, raising concerns about profit and speculation.”
Like energy providers, they seem to profit from all kinds of crises. Four companies – Archer-Daniels-Midland Company, Bunge, Cargill and Louis Dreyfus – control around 70-90% of the world’s grain trade. Cargill announced a 23% increase in revenue to a record $165 billion for the fiscal year ended May 31, Archer-Daniels-Midland posted the highest profits in its history during the second quarter of the year.
The message seems clear, while the consumer suffers in a crisis, the big companies that control the various sectors make even more profit.
I’ll let you draw your own conclusions.
The opinions expressed on this page are those of the author and not of The Portugal News.