Spain | The challenge of reducing inflation in the services sector

The recent increase in inflation, not seen in decades, has shown our aversion to the constant escalation of prices. Although inflation has already fallen, it is expected to stay above 3%, and around 2.5% in 2025, affected by the performance of the cost of services.

Key points

• Key points:
• This sector shows a lag in price recovery compared to energy and food. Since 2008, services have experienced inflation similar to these components, but as of 2019, whereas energy and food have risen by more than 30%, services have only increased by just over 10%.
• The current situation shows an abnormal relative cheapening of services, which may eventually need to be corrected, either by a reversal of the increase in the price of some components (energy, food, industrial goods) or by a greater increase in the price of others (services).
• The most likely scenario is that the price of services will show higher inflation than the rest of the components over the next few years and will slow convergence to the target.
• A more positive scenario would come from a reversal of growth in the costs of fuel and food. However, this is unlikely, as the international disputes that caused and are sustaining the current inflationary episode do not seem to be resolved.
• Another favorable scenario could stem from advances in domestic supply as a result of greater investment, advances in productivity and growth of the labor force.

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