The limit on gas will soften inflation, but less than expected by the Government

It will not be the panacea, far from it, but it will give you a break. The priority objective of the limit on gas and coal that feeds electricity generation plants is to reduce the price pressure faced by households, especially those that are in the regulated market, which are the ones that have suffered the most from the escalation and where the measure should start to have an impact as early as next week. The initiative, however, also seeks a second goal: to reduce inflation, which has become a major economic problem. And everything seems to indicate that it will achieve it, yes, although to a much lesser extent than what several analysis houses predicted at the beginning and what the Government foresees today, which speaks of up to a percentage point of decrease.

The verdict of most of the analysts consulted by EL PAÍS to try to answer the question of how much the CPI will drop is clear: the cap will reduce the annual CPI by between five and eight tenths compared to the figure it would look at the end of 2022 without that mechanism. It will help, therefore, but it will not completely stop the rise in inflation.

The most optimistic of the three is the director of the Economic Situation of the Savings Banks Foundation (Funcas), Raymond Torres, who is confident that inflation will close the year at more than 5% compared to the more than 6% it would reach without The top. “We calculate that it will be about eight tenths. It’s less than he thought, but it’s something: it’s going to have no less impact from June and, above all, July. We have to wait, yes, for it not to be canceled by the rise in oil“. The weight of electricity on the IPC is only slightly above 4%, but its volatility in recent times has been one of the main factors behind the explosion of the index.

The chief economist for Europe at Oxford Economics, Ángel Talavera, and the person in charge of Economic Analysis at BBVA, Rafael Doménech, lower this effect to around five tenths. With caution, like Torres, but also with a certain margin so that the decrease ends up being somewhat greater depending on the indirect effects that it may end up having and how much the distribution of the income derived from the greater exports to France ends up benefiting consumers .

Talavera calculates that inflation will be around 5% at the end of 2022, a number that Doménech takes to 5.2%. “That figure was without the cap, but in recent months we have seen upward surprises in inflation that skew our forecasts. If we hadn’t had any surprises in the last two months, we would now be forecasting 4.7%”, adds the BBVA Research economist, who has “the feeling” that “the upward pressures on prices that we have seen since the end of March may more than offsetting the effect of the limit on the price of gas in the electricity market”.

indirect effects

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Beyond the immediate impact on households that have a regulated rate, the big question is to what extent there will be indirect effects derived from this drop: to what extent the companies that benefit from the drop also end up applying a snip, no matter how slight that is, on the price of their products to try to gain market share. It would be a movement in the opposite direction with respect to what has happened in recent months. “This whole process, however, is unknown: what happened on the way up does not have to be the same as what happens on the way down,” argues Doménech. Talavera also doubts the course that this trend may have, at least in the short term: “The impact seems to be greater on households than on companies. But what is clear is that the cap on gas is important insurance to prevent a further escalation in inflation if gas gets out of control again, ”he values ​​by phone.

This new round of calculations contrasts with what was predicted months ago by some analysis centers, including EsadeEcPol, which at the end of April was confident that the limit would reduce the CPI by half. Why such a noticeable difference? Natalia Collado, from the Center for Economic Policies of the Esade Business School, argues two factors: “Its late approval has also had an influence – if it had been in April, as expected, the contribution to inflation would have been slightly lower the last two months—and the fact that price increases are beginning to be passed on to other goods and services, so the reduction in the contribution of electricity may be offset by other product groups“. We will have to wait, she says, at the return of summer, “coinciding with the worsening of the energy crisis last year, when electricity begins to contribute slightly negatively, that is, to reduce the CPI.”

Executive Optimism

The Government, for its part, maintains that the cap on gas will lower inflation to a much greater extent than they calculate: between eight tenths and one point, according to the forecast outlined this Thursday by the Third Vice President and Minister for the Ecological Transition, Teresa Riverbank. A calculation subject, yes, to what happens with the price of the rest of energy products, not only with electricity. “We follow with great concern the evolution of gas and oil. The great alert that we are experiencing with the prices of energy raw materials is determining a very large distortion in the economy as a whole”, he stated in statements to Onda Cero, while emphasizing the importance of the measure as a guarantee against an autumn and winter that “very likely” will be “turbulent” when it comes to energy prices.

Government calculations mean that the mechanism —which is unprecedented— takes the price of electricity to around 160 euros per megawatt hour (MWh) in the wholesale market, compared to almost 200 in recent days. This calculation already includes compensation to combined cycle, cogeneration and coal plants for the price limit that will be imposed on their main raw material. In the case of households that have a regulated rate —also known as PVPC— the reduction should be around 15% or 20%, according to the latest forecast from the Ministry for Ecological Transition.

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