Food, diesel and new clothes lead price rises in March

As soon as the first missiles began flying over the Middle East on 28 February, Brent crude oil prices were quick to respond. Whilst a barrel was trading at around $70 in February, it reached $119.50 in March – the highest level in over a year – and closed last month at around $118.

This external shock quickly spread to the Portuguese economy and was felt directly at the petrol pumps, being the main factor behind the acceleration of inflation to 2.7% in March, as confirmed on Monday by INE, the Portuguese Statistics Institute.

Of the 209 products analysed by INE to calculate the Consumer Price Index (CPI), 61% of items saw a price increase between February and March, and 70% were more expensive than a year ago.

According to INE data, the year-on-year rate rose by 0.6 percentage points compared to February, and the causes go far beyond the simple figure. “The acceleration in the CPI is almost entirely explained by the rise in fuel prices”, the statistics service stated in a press release.

Energy products, which in February recorded a year-on-year decline of 2.2%, saw a 5.7% increase in March – a dramatic reversal of 7.9 percentage points in a single month. In practice, this means that filling up a car’s fuel tank became significantly more expensive in March compared with the previous month.

Diesel, the most widely used fuel in freight transport and logistics, rose by 17.36% month-on-month, contributing 0.313 percentage points to the total change in the price index.

Petrol was not far behind, with a monthly increase of 8.08%, accounting for a further 0.093 percentage points of the inflation figure. But the impact of the war in Iran on prices is not limited to the petrol pump.

Oil is the raw material for a vast production chain, and its price surge has repercussions across sectors as diverse as plastics and packaging, agricultural fertilisers, petrochemicals and freight transport. This is why rising energy costs tend to seep, with some delay, into the prices of everyday goods, from supermarket shelves to pharmacies and clothing shops.

Alongside fuel, unprocessed foodstuffs remained one of the most persistent sources of pressure on household budgets last month, with a year-on-year increase of 6.4% in March, slightly below the 6.7% recorded in February, but still well above general inflation.

The Portuguese Statistics Institute notes that the category of “food and non-alcoholic beverages” was one of the main contributors to the year-on-year change in the CPI, alongside transport and “restaurants and accommodation services”.

Processed food products, such as tinned goods, processed dairy products or ready meals, whose prices are particularly sensitive to energy and packaging costs, recorded a year-on-year change of 1.38% and a monthly change of 0.88% – more modest figures, but ones that add to the daily financial burden on households.

The accommodation and catering sector also contributed to the rise in the cost of the Portuguese basket of goods. Hotels, motels, guesthouses and other accommodation services rose by 8.69% month-on-month, making the third-largest positive contribution to the monthly change in the total index, behind only clothing and diesel.

This rise partly reflects the start of the spring season and the growing dynamism of tourism in Portugal, which is squeezing available supply and pushing prices upwards; a situation further exacerbated by rising energy costs in the hospitality sector and the increase in aviation fuel prices, another oil derivative directly affected by instability in the Middle East.

On a different but equally relevant note, March saw the usual arrival of new clothing and footwear collections, and prices reflected this with all the seasonal intensity. Women’s clothing rose by 31.54% month-on-month, and men’s by 19.43%, making the ‘Clothing and footwear’ category the one with the largest positive contribution to the monthly change in the CPI, with the index for this category rising by 21.7% compared to February.

Although this trend is typical of March, when shops restock their shelves, INE points out that the monthly change “is influenced by seasonal effects and other more specific factors occurring in one (or both) of the months being compared”, which calls for caution when interpreting these figures in isolation.

In the housing sector, the focus is on the rental market, with pressure on prices continuing to be felt strongly. According to INE, house rents per square metre rose by 5.1% year-on-year in March, practically the same rate as in February (5.2%), with all regions of the country recording increases.

According to data compiled by INE, Madeira stands out in this regard, recording the sharpest rise in rents, with a 6.5% year-on-year increase. The average monthly change was 0.5%, with no region recording a fall.

These figures confirm that rent remains a source of structural pressure on Portuguese household budgets, regardless of the geopolitical context and fluctuations in the energy markets.

In the European context, Portugal stood slightly above the Eurozone average, with the Portuguese Harmonised Index of Consumer Prices (HICP) recording year-on-year inflation of 2.7% in March, 0.2 percentage points above Eurostat’s estimate for the Eurozone (2.5%).

Core inflation, which excludes unprocessed food and energy and is seen as a barometer of underlying price pressures, stood at 2%, below the 2.2% estimated for the Eurozone, suggesting that, once the fuel shock is factored out, the national economy maintains a relatively controlled price dynamic.

The question that remains is how long the rise in oil prices will last and whether prices at the pump have already peaked or if the worst is yet to come.