Spain’s inflation slows but any retreat is likely to be gradual

Bloomberg

Spanish inflation eased for the first time in four months, though surging energy prices as Russia limits supplies before the winter mean the retreat from record highs will probably be slow.
European Union-harmonised consumer prices rise as much as 10.3% from a year ago in August, down from July’s 10.7% increase, Spain’s statistics service said in a statement. That’s exactly in line with the median estimate in a Bloomberg survey of economists.
The data may offer some breathing space for Spanish authorities who’ve struggled to keep a lid on prices, despite providing households and businesses with billions of euros of aid. The slowdown was driven by a drop in fuel costs.
“Inflation has started to ease and it should continue slowing in the coming months,” Economy Minister Nadia Calvino told state-run broadcaster TVE. Speaking shortly after the data were released, she said government aid has helped contain price increases.
But with the war in Ukraine raging on and the Kremlin using natural gas shipments to retaliate against European Union sanctions, the outlook remains challenging. What’s more, there was more evidence that price pressures are broadening: a core inflation gauge that removes volatile items like energy and food rose to 6.4% — the highest since 1993.
“There are indications that inflation may have reached its peak, but that doesn’t mean the rate will ease right away — numbers will likely remain elevated,” said Maria Romero Paniagua, chief economist at consultancy Afi in Madrid. “Energy prices will keep exerting pressure.”
Spain’s numbers are the first in a busy week of data that’s likely to help shape the opinions of European Central Bank officials before next week’s interest-rate meeting. Some are pushing to debate a jumbo 75 basis-point hike, even as the
recession risks grow.
Germany’s inflation reading for August is due later Tuesday, while figures from France, Italy and the 19-member euro zone will arrive the following day. The latter is set to report another all-time high.
In Spain, whose economy has benefited from a post-lockdown rebound in tourism, elevated prices are already hampering job creation and hurting consumer confidence. Strikes are also possible in the coming months as the worst cost-of-living crisis in decades prompts workers to demand higher pay.