Wednesday, February 28

The INE analyzes how to include free electricity contracts to adjust inflation

J. Barks

Since January, Statistics has tried a formula that reflects in the CPI the electricity bills paid by 16 million Spaniards

Jose Maria Waiter

No one doubts that the economy is experiencing one of the most convulsive periods of incessant price increases, such as has not been seen for four decades. But the data published monthly by the National Institute of Statistics (INE), a definitive increase of 9.8% in March, still does not reflect a good part of the price that millions of consumers pay for electricity. And since electricity is the product that has pushed the shopping cart up the most, the agency has been working for months on the formula to include all electricity contracts in the official IPC registry.

It is not technically easy. So much so, that the INE wanted to incorporate these free market contracts into the official inflation data last January. And four months later it still doesn’t. Then “it was not possible”, indicate sources from the institution. “As long as the methodological difficulties are not resolved, we cannot give a date” to incorporate these data and adjust inflation to the economic reality itself: prices will continue to rise, but by incorporating free contracts (usually with fixed and stable rates), the data of inflation will change. In principle, it could be more moderate than the current one. Although sources from the energy sector clarify that there are doubts about this possible moderation since free contracts are usually more expensive -and more stable- and the latest revisions have always been higher in their prices and economic conditions.

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The problem facing the INE is depth. For now, the Statistics technicians continue to work closely with the electricity companies, so that they provide them with the information they need to incorporate the prices of electricity that they offer to their clients “with the sufficient level of detail and necessary technical criteria” that allow the application of the INE methodology according to its strict requirements.

The question is not trivial. By not including free contracts, part of the prices is left out of the records. Until now, the INE only took into account the price paid by users of the regulated market (about 10.5 million in all of Spain) by keeping track of the exact cost they pay for electricity, that is, the euro per kWh. A figure that in the case of free contracts has not yet been achieved, because it depends on the information provided by each company.

In practice, this situation translates into “a rapid transmission in inflation”, explained the economic vice president, Nadia Calviño, last week in Congress. Each euro that the kwh of the regulated rate (PVPC) raises directly raises the IPC. It supposes “an overweighting” of a specific rate, according to Calviño.

Disaggregate all data

One problem that Statistics has when analyzing the data provided by companies is that they only have total income and do not disaggregate the information between consumers who are companies and those who are households. Since it only takes into account this second case. The other obstacle is that the information on the receipts is not enough to be able to calculate the prices. You have to analyze each invoice more thoroughly.

The data with which inflation closed last year -6.7%- published by the INE at the beginning of January already caused a controversy between this organization and CaixaBank Research. The study center questioned said price increase, considering that it was outdated and that it should have been lower. In an unusual statement, the INE defended that the CPI that is published is “absolutely correct”, after stressing that it does not share the conclusions of a Caixabank Research report. Said text indicates that the institution “biased inflation upwards in 2021”, since “it is not using free market prices to calculate the price of electricity in the indicator.”

The controversy comes after an analysis by CaixaBank Research in which it points out that the inflation data includes a “clear upward bias in the CPI estimate during 2021.” It does so by considering that by not using the data of households covered by free electricity bills, the rise in prices last year would not have been 6.7% but actually 4.7%. This change in the calculation would cause the average to be 2.2% compared to the official 3.1%.

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