Spanish Inflation Rises for Third Consecutive Month as Energy Costs Climb

Spain's inflation rate has risen for the third month in a row, driven primarily by increased energy costs. The annual Consumer Price Index (CPI) inflation rate reached 3.6% in May, according to preliminary data released by the Instituto Nacional de Estadística (INE). This follows year-on-year increases of 3.2% in March and 3.3% in April.

Spain's inflation rises for the third consecutive month, driven by higher energy costs and a reinstated VAT rate. Explore the factors behind the surge and its comparison with the eurozone.

Key Factors Behind the Inflation Surge

The inflationary uptick can be attributed to a significant rise in electricity prices, which is linked to the reinstatement of a 21% Value-Added Tax (VAT) rate in March. In June 2021, the Spanish government had reduced this tax to 10% to alleviate the burden of rising energy costs on consumers. However, the VAT rate was restored as wholesale electricity prices decreased.

Spain is also planning to eliminate reduced VAT rates on some staple food items later this year, which could further drive inflation higher. This potential policy change is likely to keep upward pressure on inflation rates in the coming months.

Comparison with the Eurozone

Spain's harmonised inflation rate (HICP), which allows for comparison with other European Union member states, stood at 3.8% in May. This is an increase from 3.4% in April and slightly above the 3.7% forecast by Bloomberg-surveyed economists.

Other eurozone countries are also experiencing inflationary pressures, albeit due to different factors. For example, Germany's harmonised inflation rate rose to 2.8% in May, driven by the expiration of a national railway ticket scheme that had kept transportation costs low. Ireland reported a harmonised inflation rate of 1.9% in May, influenced by increased transport costs while energy and food prices remained stable.

Core Inflation Insights

When excluding volatile energy and food costs, Spain's core inflation rate in May was 3%, a slight increase from April's 2.9%. This core inflation rise is largely due to higher prices in tourism-related services, including holiday packages, air travel, and accommodation, as the summer travel season approaches.

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Future Outlook

Preliminary inflation data for the entire eurozone is expected soon, and all eyes are on these figures as they will provide a broader picture of inflationary trends across Europe. The INE is set to confirm the flash figures for Spain on June 13th, providing a more detailed breakdown of price changes across different sectors.

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Source: Euronews