Spain’s Inflation Rise to 2.8% in December

Rising fuel prices coupled with increased leisure costs has pushed Spain’s inflation to 2.8% in December, surpassing the 2.6% forecast, four tenths higher than in November.

The core inflation reached 2.6%, indicating persistent pressures, particularly in services, according to the flash estimates of the consumer price index (CPI), which were released by Spain’s National Statistics Institute (INE) on Monday.

The CPI is a statistical measure of the evolution of the prices of goods and services consumed by the population that reside in family dwellings in Spain.

This marked a significant increase from November’s 2.4% and defies economists’ consensus forecast of 2.6%, the INE said. The data also cements a four-month streak of rising inflation, with annual rates climbing steadily since September’s multi-year low of 1.5%.

“This evolution is mainly due to the increase in fuel prices, compared with the decrease in December 2023. Also, although to a lesser extent, leisure and culture prices increased more than in the same month of the previous year,” INE said.

The core inflation, which excludes volatile items such as fresh food and energy, rose to 2.6%, up from 2.4% in November. This indicates that underlying price pressures remain stubborn, a worrying signal for policymakers.

On a monthly basis, consumer prices increased by 0.4% in December, maintaining the same pace as the prior two months. If this monthly trend persists, Spain’s inflation rate could annualise to nearly 4.8%.

In its report, Euro News said that the outlook for 2025 for Spain hinges heavily on oil prices, according to the projections from the Spanish economic think tank Funcas. In a base scenario, Spain’s average inflation next year is forecast at 1.9%.

However, if oil prices climb to $85 per barrel, annual inflation could average 2.5%. Conversely, a drop in crude prices to $65 per barrel could lower inflation to an average of 1.3%. This oil-sensitive dynamic underscores how energy costs remain a key variable for Spain’s inflation trajectory.

Meanwhile, CaixaBank maintains its 2025 inflation forecast at 2.5%, citing persistent inflation in the services sector, which is proving more resilient than initially anticipated, the report said.

According to CaixaBank, while inflation remains a persistent challenge, the broader economic outlook is relatively optimistic. Household purchasing power is recovering steadily, buoyed by solid financial positions and a global context that, while slightly less robust, continues to provide support.

Market Reactions

Markets showed little reaction to the latest inflation figures as Spain’s IBEX 35 index fell by 0.2% in subdued trading on Monday. Banking stocks were among the weakest performers, with Banco Sabadell down 1%, BBVA losing 0.9%, and Banco Santander falling 0.8%.

However, the broader picture for Spanish equities remains positive. Year-to-date, the IBEX 35 is up nearly 14%, and over the past two years, the index has soared 40%, marking its strongest two-year rally since 2007.

As the eurozone’s fourth-largest economy steps into 2025, these numbers underscore persistent price pressures, driven largely by higher fuel costs and, to a lesser extent, leisure and culture expenses, the report added.