The temporary VAT removal on essential food products is working to lower prices, whilst retailers were not taking advantage of the initiative to boost profit margins, said the country’s Prime Minister Antonio Costa.

Last month, the government cut VAT from 6% to 0% on a total of 46 essential products in a bid to help households cope with the effect of elevated food prices.

The VAT reduction is planned to continue until the end of October, Reuters news agency reports.

The PM went on to say that additional analyses by food and economic security authority ASAE and the country’s largest consumer protection association DECO PROTESTE, carried out between the middle of April and the middle of May, revealed price declines for a basket of essential products of 7.6% and 7.9%, respectively.

“In a country where wages and pensions are low, the impact of an inflation as high as we have had inevitably hits people’s income hard... but the 0% VAT measure actually had an impact on lowering prices (of essential goods),” Costa told parliament.

The Prime Minister said the measure was agreed with producers and retail distribution “to ensure that the VAT reduction was reflected in a drop in the prices of essential goods, and that is what is happening.”

In addition, consumer prices in Portugal increased 5.7% year-on-year in April, in a considerable slowdown from a 7.4% rise the month before, with food inflation showing indications of declining.

Furthermore, as per the government’s forecast, Portugal’s inflation was predicted to edge down to 5.1% this year from 7.8% in 2022. Whereas the European Commission expects it to hit 5.6%.