Surprising Inflation Spike in Spain: Goods and Services Prices Increase by Almost Half a Point

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

In March, inflation in Spain rose by 0.8%, with prices for goods and services increasing by almost half a point compared to the previous month. This was higher than expected by market consensus, with Funcas projecting a lower rate for the month. The increase was driven by the restoration of the normal VAT rate on electricity and the rise in gasoline prices, as well as significant price increases for food products like olive oil.

Spain is the third country in the EU where basic food products are becoming more expensive. Services, rather than goods, are driving prices up, with food products being particularly affected. The monthly price evolution shows a continuous rise since the beginning of the year, with prices increasing by 0.5% in March compared to February, which was the largest increase since February 2023.

The Ministry of Economy attributed the slight increase in inflation to the normalization of the tax rate for electricity and the rise in gasoline prices, despite continued rises in food prices which were less than in March of last year. Funcas warned of inflationary pressures in services and their potential impact on salaries and margins. The provisional data released by the National Institute of Statistics suggest that underlying inflation will be moderated to 3.3%, which is lowest rate in last two years. Overall trend indicates strengthening of inflationary pressures in market.

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