Spain sees pace of inflation almost halved

Spanish inflation slowed for the fifth straight month in December, slowing by almost half since mid-year as energy costs continue to fall in the euro zone’s fourth-largest economy.

Consumer prices rose 5.6 percent year on year, after rising 6.7 percent in November, the statistics institute said. That’s better than the median estimate of 5.8 percent in a Bloomberg poll of economists.

The slowdown in headline numbers was caused by the continued decline in electricity and fuel costs. Inflation has fallen more than five percentage points since hitting a record 10.7 percent in July, but underlying price increases, a measure that removes volatile electricity and food costs, accelerated in December, hitting 6.9 Percent.

A separate release showed Portuguese inflation rising to 9.8 percent from 10.2 percent in November.

Iberia is launching a series of readings across the euro area, with slowdowns also forecast for Germany and Italy. The figure for the region itself is due in a week and is expected to fall into single digits, which will help the European Central Bank guide the pace of future rate hikes after raising the cost of borrowing by 250 basis points since July.

Despite the recent slowdown, inflation could remain high this year and next, only returning to the 2 percent target in 2025, the Bank of Spain warned earlier this month. The central bank expects mean Spanish values ​​of 4.9 percent and 3.6 percent for 2023 and 2024, respectively.

While high inflation weighs on consumption and investment, the economy is expected to dodge a recession, which could help Prime Minister Pedro Sanchez as he tries to recover in opinion polls ahead of the general election a year away.

Mr Sanchez unveiled a £10bn package of measures this week

The government, which has collected a €45 billion bill since 2021 for anti-inflation measures launched since 2021, extended tax breaks on electricity and gas bills.

It has also temporarily abolished or reduced VAT on several groceries.