(Bloomberg) — Spanish inflation accelerated in March as the government continued to remove support that had helped keep a lid on soaring energy costs.
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Consumer prices rose 3.2% from a year earlier, data published Wednesday showed. That’s a little less than the 3.3% median estimate in a Bloomberg survey of economists.
Stripping out energy and some food costs, core inflation also dipped a touch more than anticipated, to 3.3% from 3.5%.
That gauge is more in line with the trend visible across the 20-nation euro zone as the bloc’s historic spike in prices fades. The retreat is bringing the European Central Bank’s 2% target into view, with officials in Frankfurt converging around June to start lowering the deposit rate from its current record high of 4%.
For the bloc as a whole, inflation is expected to recede to 2.4% this month, according to Bloomberg Economics, while a nowcast model suggests it could dip to as low as 2.2%, accounting for the latest Spanish data. The reading is due from Eurostat on April 3. This week, France and Italy will both report figures on Friday.
The euro and regional government bonds were steady after Spain’s release, which did little to change the rates outlook. The market expects a first cut from the ECB in June, followed by at least another two quarter-point decreases by year-end.
The currency was trading flat around $1.08. The yield on two-year German bonds was down three basis points at 2.84%.
What Bloomberg Economics Says…
“The uptick in Spain’s harmonized CPI inflation is unlikely to be cause for concern. The broad direction of price gains over the rest of the year is down, but it will be a bumpy descent, in part due to the government’s decision to gradually reverse energy tax cuts – we expect headline inflation to tick up over the coming months.”
—Jamie Rush, chief European economist. Click here for full REACT.
Spain’s government is rolling back some subsidies — including those for fuel used in transportation and agriculture. It’s maintained others, however — such as discounted public transportation.
Looking ahead, another strong tourism season is likely to keep price gains “hot” in 2024, according to Oxford Economics.
“With inflation in hotels and restaurants running above 5% this year, services inflation will remain sticky and likely stay above 3%,” it said this week in a research note. “This will prevent core inflation from falling to 2% until next year.”
–With assistance from Alexander Weber, Mark Evans, Andrej Sokol (Economist) and Constantine Courcoulas.
(Updates with markets, Bloomberg Economics nowcast starting in fifth paragraph.)
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