(Bloomberg) — Spanish inflation quickened more than anticipated this month, staying above 2% for a second month on base effects and supporting the case for gradual interest-rate cuts.
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Consumer prices advanced 2.8% from a year ago in December, according to national statistics agency data published Monday. That compares with 2.4% in November and is stronger than the 2.6% median estimate in a Bloomberg survey of economists.
A gauge of underlying pressures that strips out energy and some food prices rose to 2.6%.
European Central Bank President Christine Lagarde said this month that while inflation across the euro area is set to fluctuate around its current level in the near term, the spike of recent years is increasingly moving into the rear-view mirror.
That’s allowed the ECB to cut borrowing costs in four quarter-point moves this year and economists anticipate another four in 2025, bringing the deposit rate to 2%. Most policymakers have spoken out in favor of such an approach to loosening policy — generally referred to as “gradual.”
In Spain, the change in inflation in December was mainly due to fuel prices, which had dropped in December 2023. Leisure and culture also were drivers, but to a smaller degree, the statistics office said.
What Bloomberg Economics Says…
“Base effects have pushed harmonized inflation higher again in December, but they will be working in the opposite direction next month, bringing the measure back toward 2%. In 2025, the big question for Spain’s inflation outlook is how quickly price gains in services will ease. Our forecast is for the core measure to return to the ECB’s 2% target in the second half of next year. But if we’re wrong about the cyclical position of the economy, the risk is the descent is even slower.”
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Spain has managed to restrain inflation this year, helping it record the strongest growth among the region’s top economies. While the government has rolled back some measures put in place to shield consumers when prices spiked — like value-added tax reductions on electricity bills — others such as free train tickets are still in place.
In a sign of the economy’s health, unemployment is hovering around its lowest level in more than 15 years. That helped boost wages and contributed to the elevated increases in services prices that remain a headache for the ECB.
Spanish figures are the only data from one of the major euro-area economies out this week, with public holidays delaying the publication in Germany, France, Italy and for the region as a whole until the first full week of January.
