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Spain’s Inflation Accelerates Despite Expectations, Driven by Energy Prices and Global Supply Chain Disruptions

Inflation in Spain Reaches 3.2% in March Following Three-Year Return to 21% VAT

Spain’s Inflation Accelerates Despite Expectations, Driven by Energy Prices and Global Supply Chain Disruptions

In March, inflation in Spain accelerated by four tenths to reach a year-on-year rate of 3.2%, driven by the end of tax cuts on electricity and the return to a 21% VAT rate. This was higher than expected by market consensus, with Funcas projecting a lower rate for March. Prices of goods and services were almost half a point more expensive in March compared to the previous month.

The monthly price evolution showed a continuous rise since the beginning of the year, with prices increasing by 0.8% in March compared to February, the largest increase since February 2023. The underlying inflation also rose by 0.5% in monthly terms. Provisional data released by the National Institute of Statistics suggest that the underlying inflation rate will be moderated to 3.3%, which is lower than expected and represents a significant relief for consumers and businesses alike.

The restoration of the normal VAT rate on electricity and the rise in gasoline are among the reasons for the increase in inflation. Services, more than goods, are driving prices up, and food products like olive oil are also experiencing significant price increases. Spain is currently facing high levels of inflation that are impacting both households and businesses alike, making it one of the countries with higher levels of inflation in Europe.

The Ministry of Economy attributed the slight increase in inflation to external factors such as rising energy prices and global supply chain disruptions, rather than domestic policies or government actions. Despite this explanation, some experts warn that domestic policies such as fiscal expansion may contribute to higher levels of inflation in the long term if not carefully managed. The overall trend suggests that while inflationary pressures may ease slightly in the short term due to favorable global conditions, they remain strong in Spain’s economy and could continue to pose challenges for policymakers going forward

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