Fynsa
Last week I wrote about the surprise March CPI, which caused year-over-year inflation to stand at 9.4%. This comes amid a global context in which prices continue to rise steadily, but in which local conditions have exacerbated this trend. Also, in a previous column, I told you about the composition of the CPI basket and how it represents an average individual in our economy, but that doesn’t mean it represents each of us individually. Well, this time, I want to narrow the discussion down to something the media has been constantly asking me about, which is the prices of certain specific products, with a special focus on oil (oil in 2022 is what avocados were in 2021). However, I don’t want to limit myself to the typical chart showing which products are rising (or falling) the most; instead, I want to show you which ones have hit people’s wallets the hardest and how this reaffirms that inflation is the worst tax for those with limited resources.
First, I'm going to talk about inflation starting with the very nature of the concept, which is the sustained rise in prices in an economy over a given period. In other words, I’m not going to discuss the one-off increase in the prices of goods and services during March, since such spikes are often skewed by seasonality, methodological issues, or discrete fluctuations that do not necessarily represent a trend. With that in mind, what interests us, then, is to see which goods and services have had the greatest impact on the 9.4% increase in prices accumulated by the economy over the past twelve months.
Thus, the product that has had the greatest impact on the CPI over the past year is gasoline. In fact, it accounts for 0.8 percentage points of the total, “thanks” to its nearly 31% increase. In second place, within the same category, is new cars, which, due to a 20.2% increase, contributes a little more than 0.6 percentage points to the aggregate indicator (its counterpart, used cars, also rose 20%, but its impact amounts to only 0.05 percentage points). But, unlike the former, it’s not as if you’re buying a new car every month; therefore, in your perception of inflation, this type of good may not necessarily mean a greater financial outlay. However, continuing down the list, we find that among the 20 products that have had the greatest impact this year, 15 can be classified as everyday necessities (in addition to gasoline, meat, bread, natural gas, drinking water, etc.). In case you’re wondering, cooking oil appears only in 22nd place, with an impact of 0.09 percentage points.
Another way to look at this is to compare the performance of certain sub- consumption baskets against the aggregate indicator. Thus, considering a methodology from the INE based on recommendations from the Ministry of Health, we constructed the basic food basket and the healthy food basket, in addition to the food basket that is published regularly. The results are not very encouraging, given that the basic basket shows a 13.6% increase over the past year—more than 4 percentage points above the aggregate indicator. To make matters worse, the healthy basket has risen 14.1% over the same period, while the basket that includes all food items has risen by 13.1%. It is true that household budgets are not entirely devoted to these baskets, but the higher the percentage of income spent on them, the higher the perceived rate of inflation will be. Now, it comes as no surprise that the households that spend relatively more on these products are those with the lowest incomes. This directly impacts purchasing power—which is ultimately what matters—thereby reducing their well-being. It is curious that many of the measures, which I have no doubt were well-intentioned, ended up harming the very people they were meant to help. This usually happens when people are unwilling to listen, and decision-makers entrench themselves, thinking only of their own interests rather than those they represent—who are generally not the ones shouting the loudest.
At a crucial moment in our history, it’s not too late to listen and remember the efforts made in the 1990s to defeat inflation—the tax that hits where it hurts the most.
