Spain's inflation surged in March amid the government's gradual removal of support measures, initially aimed at curbing surging energy costs, Bloomberg reported on Wednesday. Consumer price index (CPI) climbed 3.2 per cent year-on-year (YoY), slightly below the 3.3 per cent median forecast in a Bloomberg survey. Core inflation, excluding energy and certain food prices, also decreased more than expected, dropping from 3.5 per cent to 3.3 per cent. This trend aligns with the broader movement in the eurozone, where inflation is moderating after a historic rise in prices. The European Central Bank (ECB) aims for a 2 per cent target, and officials in Frankfurt are likely to convene around June to initiate a decrease in the deposit rate from its current record high of 4 per cent. Forecasts indicate that inflation for the eurozone could decline to 2.4 per cent this month, potentially dropping to 2.2 per cent when factoring in the latest Spanish data. Eurostat is set to release these figures on April 3, while France and Italy will report their data later this week. Market reaction to Spain's inflation figures was subdued, with the euro and regional government bonds remaining stable. Expectations suggest that the ECB may implement its first rate cut in June, followed by additional decreases by the end of the year. Spain's government is gradually phasing out subsidies, particularly for fuel in transport and agriculture, while maintaining others like discounted public transportation fares. Despite the downward trajectory of inflation, sustained price increases are expected due to a strong tourism season in 2024, particularly in sectors such as hotels and restaurants, keeping services inflation above 3 per cent and preventing core inflation from reaching 2 per cent until the following year.
