Month change… and shopping cart changes. October will be accompanied by increases in VAT, which taxes some of the most consumed foods in the country’s households, such as oil, milk, eggs, cereals, vegetables and pasta. This is an expected measure, but it marks a more than foreseeable increase in prices in supermarkets and marks the beginning of a new VAT increase in January 2025. The Association of Manufacturers and Distributors says that changes have already been calculated with the farewell to VAT. Lowering it will cause food inflation to rise by one point.

The real question is… Which foods will have tax increases starting from October? How useful will it be? And most importantly, how will this affect the shopping cart?

October is back, VAT is back. It is not an unexpected innovation, but it is important. October will mark the return of VAT on some “essential” foods, which have enjoyed a 0% reduction for months. Starting tomorrow, they will take back the rate set at 2 percent. A similar situation will occur in another product group that has been subject to 5% VAT for months; With the jump from September to October, this rate will increase to 7.5%. These won’t be the last updates on the tax increase. A new increase is expected in January 2025.

Which nutrients will increase? Those who will see their VAT reduced from 0 percent to 2 percent will be the “staple” foods category, which includes olive oil, milk, bread, eggs, cheese, fruit, legumes, cereals, vegetables and bread flour. The tax on seed oils and pastes, on which 5% VAT has been applied so far, will increase by 2.5 points to 7.5%. This scenario will continue until January. With the change of year, basic foods return to 4 percent VAT. Pastes and seed oils will do this 10% of the time.

But… Why these changes? Because they mark the path to “normality.” The VAT values ​​applied to these foods in the last few months, and even in the fourth quarter of this year, respond to an exceptional measure initiated by the Government to stop the increase in prices following the Russian invasion. War started in Ukraine and the Middle East. Its goal was very specific: to ease the effects of inflation on families’ pockets.

The tax cut has been extended several times, the last one at the beginning of the summer, but Moncloa warned at the time that it was a “temporary” measure planned “until food prices return to normal.” For this reason and in order to fulfill the duty of the European Commission, it has already been stated that a “phased return” to the “normal rates” of VAT will begin to be implemented as of October.

olive oil case. There are exceptions. VAT will not be reclaimed on all foods without taking measures against the crisis. The tax on olive oil will decrease significantly. Although it is one of the products that will reclaim VAT, which will rise from 0 per cent to 2 per cent from tomorrow, the Government has included it in the “essential foods” group, meaning it will be subject to super duty from January. -The reduced rate is 4%, which is less than half of the 10% taxed before the Executive Board approves the package of anti-crisis measures in 2023.

Unlike the recent VAT cuts, which have been extended over the last few months, the change in the olive oil category will be permanent. The decision comes after the brutal price increase of “liquid gold”, which has increased by 100,000 in the last few months. Almost 200% in less than four years.

Inflation as background. According to INE data, the VAT increase represents a particularly positive scenario for the Government, with inflation falling to 1.5%, supporting the idea that Spain is now past the inflationary crisis. The latest balance sheet shows that the CPI has been declining for four months and has reached its lowest value since March 2021. The key: cheaper fuel and, to a lesser extent, electricity and food.

The real question is how the VAT increase will affect the shopping cart. There are already analysts pointing to a slight rebound in inflation in January 2025 when VAT returns to normal, and the Association of Manufacturers and Distributors (Aecoc), based on the PwC report, has calculated to say goodbye to the reduction of VAT. VAT will mean that food inflation will increase by one point.

Image | Eroski S.Coop Group (Flickr) 1 and 2

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