Groceries Dip, Rents Spike as Portugal’s August Inflation Hits 2.8 %

A modest slowdown in prices is beginning to show up on supermarket shelves and electricity bills, but Portuguese rents remain in a league of their own. Annual consumer prices rose 2.8 % in August, according to the National Statistics Institute—well below last year’s double-digit peak yet still enough to nip at the budgets of foreign residents who are paid in dollars, pounds or remote-work salaries set elsewhere.

Cooling Prices, Lingering Pain

The headline figure confirms that Portugal’s post-pandemic inflation surge is losing steam, tracking a broader euro-area deceleration. Energy costs, which once drove price spikes above 10 %, fell for a fourth consecutive month, and most everyday groceries—from arroz to fresh tomatoes—are no longer racing ahead. Still, the 2.8 % pace outstrips the European Central Bank’s 2 % target, leaving policymakers in Frankfurt wary of declaring victory.

Rent and Real Estate: The Relentless Exception

Where expats feel the squeeze most acutely is housing. Nationwide, asking rents climbed roughly 8 % year-on-year, led by Lisbon and Porto, where one-bedroom flats routinely exceed €1 600. New rent contracts are exempt from the government’s 2 % cap on annual increases, meaning foreigners arriving under the digital-nomad, D7 or golden-visa successor permits often encounter sticker shock despite tamer overall inflation. The shortage of supply has outpaced cooling demand from tourism, even after new limits on alojamento local (short-term rentals).

Energy and Food: What’s Getting Cheaper—and What Isn’t

Electricity tariffs dropped slightly in August after E-REDES cut network access fees, and the popular IVA Zero programme—0 % VAT on 45 basic food staples—continues through year-end. Imported items such as breakfast cereals and peanut butter remain pricey because the euro has weakened against the dollar. Conversely, locally sourced goods including cod (bacalhau) and regional wine have seen low-single-digit increases, easing the monthly carrinho de compras for many families.

Portugal vs. the Rest of Europe

Country-by-country data show Portugal nestled in the eurozone middle. Spain posted 3.2 %, France 2.4 %, and Germany 3.1 % in the same month. The comparatively mild figure reflects neither wage freezes nor productivity miracles; instead, analysts cite long-term power contracts tied to hydro and wind, as well as a slower rebound in domestic consumption. For foreign retirees, the contrast with the United Kingdom’s 4.3 % August print keeps Portugal attractive despite tighter visa incentives after the sunset of the NHR tax regime.

What 2.8 % Means for Your Budget

For a newcomer earning a remote salary of $6 000, August’s inflation translated into roughly $168 less purchasing power than a year earlier—a manageable hit if rent is locked in. However, those renewing leases in central Porto faced increases of €100-€200 per month that easily eclipse any savings on groceries or utilities. Health insurance premiums, often overlooked, climbed about 5 % as providers priced in higher medical-service costs.

Policy Moves to Watch This Autumn

Prime Minister Luís Montenegro’s minority government has hinted at extending VAT relief on essentials beyond December if inflation stays above target. The Bank of Portugal, meanwhile, expects price growth to average 3.1 % for 2025 before converging toward 2 % the following year. Expats with mortgages tied to Euribor should pay close attention: the European Central Bank has signalled that rate cuts will be gradual, meaning variable-rate payments are unlikely to fall much before spring.

Looking Further Ahead

Economists at BPI and NOVA SBE reckon that structural factors—an ageing population, digital-nomad inflows, and constrained housing supply—could keep core inflation higher than the eurozone average through 2027. For internationals pondering a move, that points to securing long-term rental contracts, negotiating cost-of-living adjustments with overseas employers, and hedging currency exposure. Portugal remains one of Western Europe’s more affordable corners, but the days of sub-2 % inflation and €900 city-center flats appear to belong to a pre-pandemic past.