Oil prices are rising again. Brent crude is hovering around $110 and has even touched $120. This isn't a one-off spike. It's a jump that could last for months.
Gas prices are also rising. They are not at the extreme levels of 2022, but they have rebounded strongly in recent weeks and remain clearly above pre-energy crisis prices.
Given this scenario, inflation has a problem. It's not immediate. There's no sudden jump. But there is a clear upward trend. Energy directly accounts for around 10% of the CPI, but its real effect is much greater. It affects transportation, production, the food supply chain. It seeps through the entire economy.
If oil remains around $110–$120 and gas stays at current high levels, the additional impact on inflation in Spain could be between 1 and 2 percentage points in the coming months. This could mean inflation levels of 4–5%. This is not only due to the direct effect, but also to the carryover effect—the so-called second-round inflation.
In response, the government is reacting as it has done before: by lowering taxes and cushioning prices. Reduced VAT on electricity and gas. Adjustments to hydrocarbon prices. A reduction in the electricity tax. Swift, direct, and effective measures in the short term.
If these savings are actually passed on to the consumer (which doesn't always happen), they can reduce inflation by between 0.7 and 1.2 percentage points over their duration. In other words, they offset a significant portion of the energy impact.
But they don't eliminate it. They act on the final price, not the cost. Energy remains expensive. Someone simply pays the difference. And that someone is the State.
The aggregate cost of these measures is in the order of several billion euros over just a few months. This is not a small sum for such a short-term effect. Every tenth of a percentage point of inflation that is contained comes at a high fiscal cost.
Therefore, we are not reducing inflation. We are buying it with the taxes we pay. We are shifting part of the price increase from consumers to the public coffers. The CPI falls. But the deficit rises or, at the very least, becomes strained.
It worked in 2022. It prevented a major shock. It protected rents. It bought time. But it has an expiration date. But it can't be sustained indefinitely.
Inflation doesn't disappear. It just shifts. From the shopping bill to the public budget. As a quick fix, it works: we close the wound, but the bleeding continues.
There is a limit to buying inflation with everyone's money.
