Not surprisingly Liechtenstein and Switzerland are the countries with the lowest inflation rate in Europe, 2.5 percent and 3.4 percent respectively. The worst inflation is Turkey with a massive 79.6 percent. Portugal sits reasonably comfortably at 9.1 percent, lower than Spain 10.8 percent and of course the UK, 10.1 percent. The European average is 9.8 percent. Of course, these numbers are purely statistics, how is inflation affecting your life?

Needless to say, one of the main drivers is the cost of fuel, that affects everything from your own personal travel but also such things as the delivery of goods to your local shop.

One good thing is that fuel retailers in Portugal seem to follow the wholesale prices much faster than, for example, the UK. Fuel stations in the UK are fast to increase prices when the wholesale price goes up. Reducing when prices come down is quite another matter. The consumer magazine, ‘Which’ found that the fuel station are pocketing about £25 profit on every tank fill by delaying following the wholesale price.

If you look at the records for Portugal, the lowest price per litre for diesel was €1 a litre in January 2015. The highest was €2.09 a litre in July this year. Unleaded was €1.05 a litre in January 2015 while it peaked at €2.17 a litre in June this year. Prices are coming down from that peak, diesel around €1.70 a litre and unleaded around €1.80 a litre (depending on where you buy). Prices closely follow the wholesale market with very little delay.

Gas and electricity

Here the picture gets quite confusing. Recent headlines claimed that we should expect a 40 percent plus increase in domestic fuel costs. So far this does not seem to be happening. Anyone who watches English news will be aware that UK consumers are being devastated with the dramatic increase in energy prices.

The UK Office for National Statistics said this week that UK natural gas prices rose nearly 96 percemt in the year to July, while electricity prices are up 54 percent. CNN reported, ‘The worst is yet to come. Average annual energy bills could exceed £4,000 from January, and £5,000 later in the spring, up from about £2,000 currently. Millions could be forced into poverty as a consequence. Leaders of the UK National Health Service warned Friday of a "humanitarian crisis." Many people could fall sick this winter as they "face the awful choice between skipping meals to heat their homes and having to live in in cold, damp and very unpleasant conditions,"

The crisis is not unique to the UK. Prices have shot up across Europe since last autumn, driven by a spike in demand as countries lifted pandemic lockdowns. Russia's invasion of Ukraine in late February, and the subsequent drop in Moscow's oil and natural gas exports to Europe, have pushed prices even higher.

Portugal and Spain act together as an "energy island"

The Spanish and Portuguese governments — both led by Socialist prime ministers — had been calling on Brussels since last summer to implement measures to reduce electricity prices which have skyrocketed as a result of increased demand for natural gas, supply chain issues and geopolitical tensions including the war in Ukraine. The European Commission gave its approval in April for an Iberian exception allowing Spain and Portugal to decouple the price of gas from that of electricity for the next 12 months.

Madrid and Lisbon had argued the Iberian Peninsula should be allowed to cap prices to a maximum of €30 per megawatt hour because of their low interconnection with the rest of the bloc, describing themselves as an "energy island". The two countries also have a much lower dependence on Russian gas — they primarily import from Algeria — as well as high renewable generation.

Renewable energy doesn’t benefit you

From being one of the EU countries with the highest dependency (80 percent in 2010), Portugal has developed a renewables sector responsible for up to 65 percent of the electricity generation. But there is a catch. EU member states trade electricity on a wholesale market based on a system of what is called ‘marginal pricing’ which means that everybody gets the same price for the electricity they are producing regardless of how that electricity is produced — renewables are produced at almost zero cost.

That means that the wholesale price is set by the most expensive way of producing electricity. Solar energy may be virtually cost free to produce, but it’s sold at what can only be seen as a vast profit. The energy wholesale suppliers are making billions in extra profit. You may see solar farms springing up everywhere in Portugal, but as the regulations stand, it’s of no benefit to the consumer, only to the environment.

How has inflation hit your shopping bill?

It’s not so easy to spot where the individual price increase are happening, but you notice it at checkout. Wine seems to have increased by something between 11 percent and 15 percent. That may be mainly due to transport costs, a lorry full of wine bottles is heavy and many of our national wines are traveling long distance to reach our supermarket shelves. Other goods are suffering from various impacts of the current economic situation.

The Guardian recently reported ‘Sales at world’s top four traders have soared, raising concerns of profiteering and speculation’.

Just as it is with the energy suppliers, they seem to profit from any sort of crises. Four companies – the Archer-Daniels-Midland Company, Bunge, Cargill and Louis Dreyfus, control an estimated 70-90 percent of the global grain trade. Cargill reported a 23 percent increase in revenues to a record $165bn for the year ended 31 May, Archer-Daniels-Midland made the highest profits in its history during the second quarter of the year.

The message seems clear, while the consumer suffers in a crisis, the big companies that control the different sectors make even more profit.

I will leave you to draw your own conclusions.

Author

Resident in Portugal for 50 years, publishing and writing about Portugal since 1977. Privileged to have seen, firsthand, Portugal progress from a dictatorship (1974) into a stable democracy. 

Paul Luckman