Spain’s inflation surpasses forecasts in December as fuel costs surge

Spain closed 2024 with an inflation surprise: consumer prices rose at a higher-than-expected annual rate of 2.8% in December, according to flash estimates from Spain’s National Statistics Institute (INE) released on Monday.

This marks a significant increase from November’s 2.4% and defies economists’ consensus forecast of 2.6%.

The December data also cements a four-month streak of rising inflation, with annual rates climbing steadily since September’s multi-year low of 1.5%.

As the eurozone’s fourth-largest economy steps into 2025, these numbers underscore persistent price pressures, driven largely by higher fuel costs and, to a lesser extent, leisure and culture expenses.

Fuel prices ignite Spain’s inflation resurgence

The primary culprit behind December’s inflation spike is the rebound in fuel prices, reversing declines seen in December 2023. Additionally, the leisure and culture category experienced stronger-than-expected price growth compared with the same period last year, further contributing to upward pressure.

Core inflation, which excludes volatile items such as fresh food and energy, rose to 2.6%, up from 2.4% in November. This indicates that underlying price pressures remain stubborn, a worrying signal for policymakers.

On a monthly basis, consumer prices increased by 0.4% in December, maintaining the same pace as the prior two months. If this monthly trend persists, Spain’s inflation rate could annualise to nearly 4.8%.

2025 Spanish inflation outlook: All eyes on oil

What lies ahead for Spain in 2025? The outlook hinges heavily on oil prices, according to projections from the Spanish economic think tank Funcas. In a base scenario, Spain’s average inflation next year is forecast at 1.9%.

However, if oil prices climb to $85 per barrel, annual inflation could average 2.5%. Conversely, a drop in crude prices to $65 per barrel could lower inflation to an average of 1.3%. This oil-sensitive dynamic underscores how energy costs remain a key variable for Spain’s inflation trajectory.

Meanwhile, CaixaBank maintains its 2025 inflation forecast at 2.5%, citing persistent inflation in the services sector, which is proving more resilient than initially anticipated.

According to the Spanish bank, while inflation remains a persistent challenge, the broader economic outlook is relatively optimistic. Household purchasing power is recovering steadily, buoyed by solid financial positions and a global context that, while slightly less robust, continues to provide support.

Market reactions

Markets showed little reaction to the latest inflation figures.

Spain’s IBEX 35 index fell by 0.2% in subdued trading on Monday. Banking stocks were among the weakest performers, with Banco Sabadell down 1%, BBVA losing 0.9%, and Banco Santander falling 0.8%.

However, the broader picture for Spanish equities remains positive. Year-to-date, the IBEX 35 is up nearly 14%, and over the past two years, the index has soared 40%, marking its strongest two-year rally since 2007.