Spain’s inflation eases to 1.9%, below European Central Bank’s target

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Spain’s inflation fell year-on-year to 1.9 percent in June, making it the first of the eurozone’s major economies to report price growth below the European Central Bank’s 2 percent target.

Annual inflation eased significantly from the 3.2 percent increase recorded in May, a change driven by slower growth in fuel, electricity and food and drink prices, Spain’s National Statistical Institute said, The Ministry of Economy said that this is the country’s lowest monthly inflation figure since April 2021.

The flash reading of 1.9 percent was higher than the 1.7 percent forecast by economists polled by Reuters. Core inflation, which removes volatile energy and food prices, was 5.9 percent year-on-year, up from 6.1 percent in May.

The economy ministry declared the country “the first major economy in the eurozone to have inflation below 2 percent” as food and fuel prices soared after Russia’s full-scale invasion of Ukraine last year.

Annual inflation in Italy was 6.7 percent in June, compared to 8 percent in May. Germany publishes consumer price data on Thursdays and France on Fridays.

The figure comes as Spain’s Socialist Prime Minister Pedro Sanchez is fighting for his political life in a snap general election next month.

Sánchez has tried to take credit for Spain’s relatively low inflation, linking it to government energy policies aimed at mitigating the effects of high gas prices. But his party’s defeat in local and regional elections in May – the trigger for the snap election – suggested the economic message had not resonated with enough voters.

Instead, discontent over Sánchez’s political alliances, which has been fueled by the opposition People’s Party, is more important than any perception that the prime minister had successfully steered the economy through a series of crises.

ING economist Wouter Thierry said “several factors are adding to disinflationary pressures” in Spain, such as the drop in gas, electricity and food prices from their peak last summer.

However, he warned that rising oil prices and “the roll-off of some government measures are likely to raise consumer prices in the second half of the year, which will also exert pressure on inflation”.

ING expects Spanish inflation to average 4.1 percent in 2023, before falling to 2.5 percent in 2024.