The war in the Middle East has exceeded the schedule set by the Government to ease relief measures against rising prices that it activated in March due to the war in Iran. Following the CPI increase in July, released yesterday, the Executive has used its last card: a 20-cent discount on diesel for the upcoming month of September. This is the final resource of a social shield that is counting down. With Brent crude hovering around 90 dollars, everything points to the Government being forced to launch – with the approval of Congress – another anti-crisis plan after the summer.
It would be the third package of measures since the conflict began. The first, activated at the end of March, included an ambitious set of tax cuts – from VAT on electricity, gas, and fuels to direct aid for professional transport. The Government was forced to renew it at the end of June, when the previous one expired, due to the lack of normalization of traffic through the Strait of Hormuz, the maritime artery through which before the conflict flowed a quarter of the world’s oil and liquefied gas.
This second version included the gradual withdrawal of the Special Hydrocarbons Tax (IEH) reduction. It would be 15 cents per liter in July, 10 cents in August, and 5 cents in September. However, the cut of VAT on fuels to 10%, which Brussels had criticized, was dropped. This last point caused a sharp increase in diesel and gasoline prices already in July, during the peak season for Spanish roads due to summer holidays.
The new edition of the anti-crisis plan came into effect on June 29 and was ratified by Congress a month later with the abstention of the PP and the rejection of Vox and Podemos. The text kept intact the “safeguard clause” that Moncloa introduced from the start. Namely, if the year-on-year CPI increase for gasoline or diesel in June or July exceeded 15%, the special tax withdrawal plan would be canceled. Instead, the affected fuel would be discounted by 20 cents per liter, four times more than planned, in the month following the publication of the data by the INE. This was confirmed yesterday in the case of diesel, to which this emergency discount will apply in September.
The problem is that the current anti-crisis decree set the July CPI data as the last reference to activate the clause. That is, the Government will not be able to resort to this SOS again if the August inflation data again exceeds the 15% threshold. If prices continue to rise, the Executive would have to activate its third shock plan as soon as it returns from vacation, before the end of September and, again, bring it before the Chamber for review.
Summer ‘Rally’
The rally of fuels broke out already in July, recording the most aggressive increase in 20 years for a ‘summer operation’. However, until now the threshold set by the Government for the safeguard clause had not been exceeded.
In June, diesel recorded a year-on-year increase of 14.11%, a few tenths below the critical threshold, while in July it did exceed that red line, jumping 15.6%. This week, according to the latest European Union bulletin, it has reached an average of 1.822 euros per liter, more than 30 cents above just before summer.
The rise in gasoline has been more moderate. Its average price is around 1.703 euros per liter. Regarding its year-on-year evolution, it closed July with a 7.3% increase, still far from the cap set by Moncloa to activate the emergency shield.
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