Spanish Inflation Slows More Than Expected, Hitting 5.6%

Article content

(Bloomberg) — Spanish inflation slowed for a fifth straight month in December, decelerating by nearly half since mid-year as energy costs continue to decline in the euro zone’s fourth-largest economy.  

Article content

Consumer prices rose 5.6% from a year earlier, down from a 6.7% advance in November, the statistics institute said Friday. That’s a better reading than the 5.8% median estimate in a Bloomberg survey of economists.

Article content

The slowdown in the headline number was driven by continued declines in electricity and fuel costs. Inflation has eased more than 5 percentage points since hitting a record 10.7% July, but underlying price increases, a gauge that removes volatile power and food costs, accelerated in December, hitting 6.9%.

Spain’s data kicks off a raft of readings across the euro area, with Germany and Italy also predicted to show a deceleration. The number for the region itself — due a week from now and expected to drop to single digits — will help the European Central Bank decide the pace of future rate increases after raising borrowing costs by 250 basis points since July.  

Article content

Despite the recent slowdown, inflation could remain high this year and next, and only return to the 2% target in 2025, the Bank of Spain warned earlier this month. The central bank expects median Spanish readings of 4.9% and 3.6% in 2023 and 2024, respectively.  

While strong inflation weighs on consumption and investment, the economy is expected to dodge recession, which could help Prime Minister Pedro Sanchez as he tries to recover in opinion polls ahead of the general election a year from now. 

Sanchez this week revealed a €10 billion package of measures to continue battling soaring prices, especially food inflation that hovers around 15%. 

The government, which has raked up a €45 billion bill for anti-inflation measures launched since 2021, extended tax breaks on electricity and gas bills. It also temporarily scrapped or reduced the value-added charge on several food products.   

—With assistance from Joshua Robinson and Joel Rinneby.