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Spanish inflation fell to 1.6 per cent year on year in June, making it the first of the eurozone’s large economies to record annual price rises below the European Central Bank’s 2 per cent target since the Ukraine war.
The inflation figure, measured on an EU harmonised basis, fell significantly from the 2.9 per cent rise recorded in May, with slower increases in fuel, electricity and food and drinks prices driving the change, Spain’s national statistics institute said.
Spain’s government has positioned itself as a leader in the fight against inflation, arguing that its energy policies have helped to dim the effect of high gas prices. It is the first time Spanish headline inflation has fallen below 2 per cent since March 2021.
The reading of 1.6 per cent was higher than the 1.5 per cent forecast by economists polled by Reuters. Core inflation, which strips out volatile energy and fresh food prices, has remained consistently higher, and was 5.9 per cent in June, down from 6.1 per cent in May.
The economy ministry said the country was “the first big economy in the eurozone to reduce inflation below 2 per cent” since Russia’s full-scale invasion of Ukraine last year sparked a surge in food and fuel prices.
Annual inflation in Italy was 6.7 per cent in June, compared with 8 per cent in May. Germany and France publish consumer price figures later on Thursday and Friday respectively.
The figure comes as Spain’s Socialist prime minister Pedro Sánchez is battling for his political life in a snap general election next month.
Sánchez has sought to take credit for Spain’s relatively low inflation, linking it to government fuel subsidies and a policy that cut a link between domestic electricity prices and the gas price elsewhere in Europe.
Spain was always in a stronger position than many of its peers, notably Germany, because it did not depend on Russian natural gas and generates a significant proportion of its electricity from wind and solar power.
But Sánchez’s defeat in local and regional polls in May — the trigger for the snap election — suggested his economic message has not resonated with voters.
Instead, discontent over Sánchez’s political alliances, which has been stoked by the opposition People’s party, outweighed any perception that the prime minister had steered the economy successfully through a series of crises.
Economists at BBVA said energy prices had contributed more to the inflation slowdown than food, noting that the effects of a prolonged drought in southern Spain this year were stopping food prices from slowing more quickly.
Wouter Thierie, an economist at ING, warned that consumer prices were likely to increase in the second half of the year on the back of a rise in oil prices and the “discontinuation of certain government measures which will also put upward pressure on inflation”.
ING expected Spanish inflation to average 4.1 per cent in 2023 before falling to 2.5 per cent in 2024.
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