Spanish inflation picked up in March as energy prices rose

MADRID — Spanish inflation accelerated in March due mainly to higher energy costs, preliminary official data showed Wednesday.

Consumer prices rose 3.2 percent on an annual basis, up from 2.8 percent in February, national statistics office INE said in a statement.

The main factor pushing up inflation was a rise in the price of electricity and fuel, which offset slower growth in food and non-alcoholic drink prices, it added.

Spanish inflation hit a record 10.8 percent in July 2022, its highest level since 1985 as Russia’s invasion of Ukraine sent consumer prices soaring, but it has since eased.

READ: Euro zone inflation dips but stubborn core prices may worry ECB

Socialist Prime Minister Pedro Sanchez in 2022 put in place a series of measures to help households cope with higher inflation such as free commuter rail travel and a lower value-added tax on energy bills and some food items which it plans to start phasing out this year.

VAT to fuel further rise in inflation

Adrian Prettejohn, Europe economist at Capital Economics, said Spanish inflation is likely to increase further over the coming months due to higher VAT rates in energy and foods, and higher prices from services firms.

READ: Spain’s 12-month inflation fell to 3.2% in November

“Meanwhile, the tightness of the labor market suggests that inflation could stay above 2.0 percent over the next couple of years,” he added in a research note.

The Bank of Spain predicts inflation will ease to 2.7 percent this year from 3.4 percent in 2023 due to a gradual moderation in the pace of food price rises, and then fall to 1.9 percent on 2025.

The European Central Bank has raised interest rates in efforts to bring eurozone inflation back to its two-percent target.