Spain’s inflation rate unexpectedly soared to 2.8% in December, surpassing the anticipated 2.6%, primarily driven by rising fuel costs and increased expenses in the leisure sector. Core inflation, which excludes volatile items such as food and energy, also increased to 2.6%, indicating ongoing pressure, especially within the services sector.
As reported by Spain’s National Statistics Institute (INE) on Monday, December’s consumer price index marks a leap from November’s 2.4% and defies economists’ forecasts. This rise in inflation signals a worrying trend as the eurozone’s fourth-largest economy enters 2025, highlighting persistent price pressures that could affect economic stability.
The Catalyst: Rising Fuel Prices
The main driver of December’s inflation spike is the resurgence in fuel prices, which have rebounded from decreases seen a year prior. Additionally, the leisure and culture segment recorded stronger-than-expected price growth compared to the same time last year, adding to the upward inflationary pressures. Core inflation’s rise from 2.4% in November to 2.6% reinforces concerns about enduring price pressures that might challenge policymakers moving forward.
Monthly increases were steady, with consumer prices rising by 0.4% in December, consistent with increases recorded in the previous two months. If this trend continues, annual inflation in Spain could escalate to nearly 4.8%.
Forecast for Spanish Inflation in 2025: The Role of Oil Prices
Looking ahead to 2025, Spain’s inflation outlook is heavily dependent on oil prices, according to insights from Spanish economic analyst group Funcas. In a base scenario, average inflation for the upcoming year is projected to be 1.9%. However, if oil prices surge to $85 per barrel, inflation may average 2.5%. Conversely, a decline in crude oil prices to $65 per barrel could result in an average inflation rate of 1.3%. This volatility emphasizes the critical influence of energy costs on Spain’s inflation trajectory.
CaixaBank also anticipates an inflation rate of 2.5% for 2025, highlighting ongoing inflation in the resilient services sector, which is performing better than expected. Despite persistent inflation being a challenge, the overall economic landscape remains optimistic, with household purchasing power gradually recovering, supported by solid financial positions.
Market Response to Inflation Data
Surprisingly, financial markets showed limited reaction to the latest inflation figures. On Monday, Spain’s IBEX 35 index slipped by 0.2% amidst quiet trading. Banking stocks notably underperformed, with Banco Sabadell down 1%, BBVA decreasing by 0.9%, and Banco Santander falling by 0.8%. However, the overall outlook for Spanish equities appears favorable, with the IBEX 35 rising nearly 14% year-to-date and experiencing a remarkable 40% surge over the last two years, marking the strongest two-year rally since 2007.
Photo credit & article inspired by: Euronews
