Food prices pushed 2020 inflation to 3% despite the pandemic contraction

The December CPI was above expectations. According to the National Institute of Statistics (INE), the cost of living experienced a variation of 0.3% in the last month of the year, compared to the 0.2% expected by the experts consulted by the Central Bank. It is the highest record for December since 2013. With this result, accumulated inflation in 2020 reached 3%, the Central Bank’s goal for the second consecutive year.

In December, a month marked by higher levels of consumption, also driven by the second withdrawal of funds from the AFPs, nine of the twelve divisions that make up the CPI basket contributed positive impacts on the monthly variation of the index and three presented negative impacts .

Among the divisions with increases in their prices, clothing and footwear stood out, which registered monthly increases in four of its five classes. The most important was clothing (3.9%) followed by shoes and other footwear (3.8%).

Household equipment and maintenance was the other division that pushed the indicator and recorded monthly increases in six of its ten classes. The most important was non-durable goods for the home (2.4%), followed by furniture and household items (2.1%).

In 2020, the categories that rose the most were in some way reflected the effects of the pandemic. Food and non-alcoholic beverages, with a rise of 7.6%, and Household equipment and maintenance (5.9%), presented the greatest increases.

In more detail, the Food group (without considering beverages) climbed 8.1% -the highest incidence in inflation-, the highest record since 2011. In any case, there were groups that rose more, but with less incidence and that They also account for the behavior of the demand in confinement: Audiovisual Equipment (15.8%), Insurance (13.4%), Home appliances (13.3%), Furniture and accessories for the home (12.6% ).

“There are several factors that explain the rise in food prices. The most relevant are the drought that the country has been experiencing for several years and the higher cost of production, partly due to Covid and the lower labor force. In addition, international reference prices (FAO) reached maximums in 2020, which also drove the rise, ”said Martina Ogaz, economist at EuroAmerica.

By specific products, those that climbed the most in the year were paprika (57.7%), women’s shoes (-45.6%) and printers (45%). These last two, in high demand during confinement.

On the contrary, the groups that decreased the most were Telephone equipment (-12.5%), Accommodation services (-11%) and Tourist packages (-7.5%). The last two hit by the consequences of the coronavirus.

That prices rise around the goal of the Central Bank in full global contraction has its explanation, both in local and external factors. “Although inflation closed at the target of 3% for the second consecutive year, the fact that this occurs in a year of strong economic contraction shows that there are transitory factors pushing prices up,” they said from Santander. The entity attributes the withdrawal of 10% -which injects liquidity into households- and the rise in the dollar (the average was 13% over the previous year).

Thus, the first factor allows to increase demand, which puts pressure on prices. The second raises the prices of imported products. In fact, for several months a stock break has been observed in several categories.