Spain started the year with inflation at 2.9%, and ends it… at 2.9%. The circular movement of prices, which closes the year where it began, according to the advance data for December published this Tuesday by the National Institute of Statistics, has been full of ups and downs, with a very favorable spring that withered as the months progressed. This worsening has caused the average for the year to remain at 2.7%, preventing us from speaking of a normalization of prices at the target levels of the European Central Bank (2%).
In the specific case of December, prices have moderated by one tenth compared to November, thanks to the drop in fuel prices, but the gap with the euro zone remains almost intact, with a . A problem for the competitiveness of export companies.
It is true that the average rate has improved compared to 2024, when it was 2.8%, but very slightly. Electricity prices have significantly influenced the data, for the worse, to the point that BBVA Research estimates that its price increased by 8% since the blackout, and will subtract a tenth from GDP growth in 2025 and 2026. The paradox is that, despite the increase, the bank’s research service estimates that the price of electricity in the Spanish wholesale market continues to be more than 20% below what is paid in the rest of Europe.
CaixaBank Research agrees in granting capital importance to the behavior of the price of electricity. “The moderation of inflation in the coming months will depend largely on energy prices, especially electricity. The international outlook for energy is favorable, although at the national level some uncertainty linked to electricity persists. On the one hand, starting in January, the regulated tariff will incorporate changes in its calculation that should provide greater stability to the price of electricity. On the other hand, the renegotiation of contracts in the free market could generate upward pressures.”
It was a turning point, because it pushed the authorities to take extreme precautions and resort more to the use of gas plants to prevent a repeat of the power outage. Added to this is the fact that they lowered the energy bill, which would explain the increase in prices in year-on-year terms from the end of 2024 to the beginning of 2025.
For Ángel Talavera, chief economist for Europe at Oxford Economics, the gap with the euro partners is normal considering that it tends to overheat prices. But it stands out that the differential in underlying inflation (with an average of 2.3% this year) is relatively small if we compare it with the differences in GDP rates, where Spain clearly dominates among the large economies. “The component that has the most influence is electricity, which in the long run is expected to balance out. That said, the gap represents a small loss of competitiveness, which if maintained for a long time does begin to pose a problem,” he analyzes.
Core inflation, which excludes energy and unprocessed food prices from its calculation, has had a more pronounced fall, of six tenths compared to the 2.9% annual average in 2024, a figure that the Government clings to to defend that Spain is approaching the ECB’s objective.
Purchasing power
When will this rift with Europe be closed and will we be able to talk about normalized inflation? BBVA Research estimates that it may still take time, although rates will continue to moderate slowly, to 2.5% in 2026 and 2.2% in 2027, which will facilitate the recovery of the purchasing power of salaries and support the recovery of private consumption. “The growth of labor income will contribute to this, which advances mainly due to the increase in job creation, but also,” they point out in their latest report Spain Situation.
In this context, monetary policy will not be an ally. The European Central Bank is currently prioritizing the stability of interest rates, frozen at 2%, because unlike what is happening in Spain, . So in the short term, rate increases are not expected to help moderate Spanish inflation.
Yes, the behavior of Brent oil (the benchmark in Europe), which hovers around annual lows around $60 per barrel, and the price of natural gas, which has dropped almost half of its value so far this year, and has already lost more than 90% compared to the peak that followed the invasion of Ukraine, are contributing to the de-escalation. , which makes purchases abroad cheaper, especially energy.
One of the most notable consequences of this entrenched inflation in Spain will be seen in the revaluation of pensions. This is because the average inflation of the twelve months between November of the current year and December of the previous year is taken as a reference for the calculation.
