Spain | Inflation falls, though prices still not

Inflation is falling and over the coming months various factors are expected to place it around, or below, 2%. Nonetheless, pressure from higher labor costs and geopolitical uncertainty could make for a bumpy ride.

Key points

• Key points:
• Of the total goods and services included in the CPI, 90% already show year-on-year price increases of less than 4%, on a par with what was observed in the first half of 2021, when inflation was around 1.6% on average, and holding up favorably with the 40% of mid-2022.
• On top of this, we have the recent declines in the price of fuel and food. The price of a barrel of oil has been hovering at around $70, a significant decline from the levels seen just over a year ago (90–100).
• The price of electricity in the Spanish retail (and wholesale) market is at similar levels to those envisaged for the 2017–2021 period. Inflation for processed and unprocessed food has declined from highs of 14% and 16% in late 2022 and early 2023 to figures of between 2% and 4% recently.
• The possible reduction in working hours, together with the increase in Social Security contributions, will be accompanied by labor shortages in some industries and jobs, thus placing further pressure on company costs.
• Tariff policies threaten to increase the price of some imports, while growing tensions between certain countries generate uncertainty regarding the sustainability of the reduction in the price of commodities.

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