Rising Inflation in Spain: Driving Factors, Expert Warnings, and Future Trends

Spain’s Inflation Reaches 3.2% in March as VAT Returns to 21% after Three-Year Absence

In March, inflation in Spain accelerated to 3.2% year-on-year, a four-tenths increase from the previous month. This increase was driven by the end of tax cuts on electricity and the return to a 21% VAT rate. The monthly price evolution has been on an upward trend since the beginning of the year, with prices rising by 0.1% in January, 0.4% in February, and 0.8% in March. Despite these increases, food prices in March rose less than they did in the same month last year.

The underlying inflation also rose by 0.5% in monthly terms. The provisional data released by the National Institute of Statistics suggests that core inflation, which excludes fresh food and energy products, will be moderated to 3.3%, the lowest rate in the last two years. This is a drop from 3.5% in February and the first time since 2022 that core inflation is above the general index.

Experts warn of potential inflationary pressures in various sectors, particularly in services due to factors such as labor shortages and supply chain disruptions caused by Russia’s invasion of Ukraine.

Overall, despite recent fluctuations in price trends and concerns about inflationary pressures, experts believe that prices will continue to rise steadily throughout the year.

In March, Spain recorded its highest annualized inflation rate since September 2019 when it hit 3%, but still lower than expected levels of around 4%. The increase was mainly driven by rising energy costs due to Russia’s invasion of Ukraine.

The provisional data released by INDEC shows that prices increased slightly more than expected in some sectors like housing and transportation due to rising fuel costs and labor shortages.

Despite this increase, food prices only rose slightly higher than they did last year thanks to government subsidies aimed at helping consumers cope with rising costs.

Overall, while prices have been increasing steadily since January this year due to global economic factors such as supply chain disruptions and commodity price fluctuations, experts expect them to moderate soon as demand weakens amidst ongoing political uncertainty and recession fears across Europe.

Sophia Reynolds

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