|  NEWS

Inflation in Spain has accelerated for a third month as the reduction of government support measures aimed at curbing the energy crisis drove prices higher.

The reading for May stood at 3.8% compared to last year, according to data published on Thursday. This is a rise from 3.4% in April and marginally higher than the 3.7% average estimate in a Bloomberg poll of economists.

Not taking into account energy and certain food costs, core inflation rose to 3% from 2.9%.

The figures mirror a similar increase in Germany, where last year’s introduction of a low-cost public transport ticket pushed price growth to 2.8% in May. Data for the eurozone, expected on Friday, are also anticipated to show an uptick to 2.5%.

These numbers are unlikely to alter the European Central Bank’s plan to reduce its deposit rate next week from the current record high of 4%. However, while policymakers anticipate disinflation to resume throughout 2024 and 2025, they indicate they will proceed cautiously in approving further cuts.

“The rise in Spain’s harmonized CPI in May shouldn’t be cause for concern. The increase is mostly explained by unfavourable base effects from energy and there’s likely to be better news on the core measure. Underlying price gains have been on a smoother downward trend than the headline measure and we expect them to fall below 2% later this year – evidence that any risk of persistent inflation has all but faded,” said Bloomberg Economics economist, Ana Andrade.

Markets are fully expecting two rate cuts this year, with a one-in-three chance of a third, Bloomberg reports. ECB Chief Economist Philip Lane stated last week that monetary policy will need to stay restrictive for the remainder of 2024.

In Spain, faster economic growth compared to most of the euro area could support inflation. However, the government has had to abandon plans to pass a budget for 2024, and a political stalemate in parliament has restricted Prime Minister Pedro Sanchez's ability to enact new legislation.

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