Inflation in Spain has shown signs of deceleration in May, providing a boost to European Central Bank (ECB) officials who believe that the continent’s historic price surge is gradually fading. The recent data, which reveals a slowdown in consumer price growth and a decline in fuel costs, aligns with expectations of the ECB winding down its monetary tightening campaign. Spanish Prime Minister Pedro Sanchez, who recently called for a snap election following significant losses in local elections, will likely welcome the easing inflationary pressures.
Spanish inflation has retreated to its lowest level since July 2021, with May’s reading moderating to 2.9%. This figure, which is below the 3.3% median estimate from a Bloomberg survey of economists, reflects the easing growth in food prices and a decline in fuel costs. The result follows April’s increase of 3.8%, demonstrating a more favorable trend in inflationary pressures.
Moreover, a closer examination of underlying inflation, which excludes energy and certain food items, reveals a consistent decline for the third consecutive month, although it remains relatively high at 6.1%. These figures suggest that while Spain maintains the slowest inflation rate among the eurozone’s largest economies, it shares the trend of a more rapid retreat in headline price gains compared to the core measure.
The moderation in inflationary pressures comes as welcome news for ECB officials who rely on the core measure to guide their decisions on the end of the unprecedented monetary-tightening campaign. Yesterday, Pablo Hernandez de Cos, the Governor of the Spanish central bank, expressed his view on the matter, stating, “We think that we still have some way to go in tightening monetary policy, although we also think that we are closer to the end.” His statement suggests a cautious approach to monetary policy adjustments, acknowledging the need for continued tightening while recognizing the potential for the campaign to conclude in the near future.
The slowing inflation rate also brings relief for Spanish Prime Minister Pedro Sanchez, who recently faced significant losses in the local elections. Following this setback, Sanchez called for a snap election on July 23. The easing inflationary pressures may provide a favorable backdrop for potential economic adjustments and policy decisions in the run-up to the upcoming general election.
Looking ahead, France, Italy, and Germany are set to report their figures on Wednesday, followed by the publication of the euro area’s overall numbers a day later.