Spain: Inflation more resilient than expected - ING

Spain’s June inflation data showed that recent fears of a sharp drop were exaggerated according to Geoffrey Minne, Economist at ING as price categories unrelated to energy were more resilient than initially expected in June.

Key Quotes

“The headline inflation rate in Spain has been confirmed at 1.6% year-on-year, following 2% in May and 2.6% in April. The month-on-month figure was marginally revised upwards, from 0% to 0,1%. Also, the core inflation rate increased from 1% to 1.2%. The spike observed in the first months of 2017 was mainly driven by temporary factors such as higher energy prices, a stronger winter than usual or the particular date of Easter holidays. Now that those elements have a lower influence, we are getting closer to the structural inflation rate, which not is not yet anywhere close to ECB’s objective of getting an inflation rate “close but below 2%”.”

“That being said, some elements in today’s inflation report lead us to be optimistic. Analysing the different categories and their respective weights, 44% of the basket either reached in June their highest figure of the last 12 months or were relatively close to it. Categories pertaining to restaurant (+3.1% YoY) and clothing (+1.4% YoY) in particular turned out to have accelerated recently. On the top of that we can expect the impressive recovery in Spain (and its third consecutive year above 3% GDP growth) to progressively sustain wage growth and therefore inflation.”

“Does it mean that inflation will be back on track soon in Spain and more generally in the Eurozone? No, it is not and it is definitely too soon to claim victory. Still, Mario Draghi should be pleased to see that Spanish inflation is unlikely to drop back below 1%. It is a first step in the right direction, and hopefully not the last one.”