Spanish Inflation at One-Year Low With ECB Set to Cut Rates
(Bloomberg) -- Spanish inflation eased to its lowest level in a year — a retreat that’s likely to be mirrored across the euro zone, allowing the European Central Bank to continue lowering interest rates.
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Consumer prices advanced 2.4% from a year ago, according to data published Thursday by the national statistics agency. That’s less than the 2.5% median estimate in a Bloomberg survey of economists.
The third straight monthly slowdown came thanks to lower fuel costs, as well as those of food and non-alcoholic beverages. A gauge of underlying pressures that strips out energy and some food prices, moderated to 2.7%.
What Bloomberg Economics Says...
“Spanish inflation took another leg down in August and will probably touch the ECB’s 2% target next month. But not for long. After driving much of the fall in price gains, energy base effects will start working in the opposite direction later in the year. We forecast headline inflation to gradually tick up to just below 3% by year-end, also pushed up by tax cut reversals.”
—Ana Andrade, economist. Click here for full REACT
Spain’s data are part of what analysts reckon will be a broad-based decline in inflation in the 20-nation euro area. Figures due later Thursday will confirm whether that’s the case for the region’s largest economy, Germany. Friday includes reports from France, Italy and the bloc as a whole, where prices are estimated to have risen by 2.2% this month versus 2.6% in July.
Softer inflation numbers Thursday from Germany’s regions led traders to slightly increase bets on ECB rate cuts, pricing about 69 basis points of easing through year-end. German bonds flipped to gains and the euro erased an earlier advance to hit its lowest level in more than a week at $1.1072.
Another reduction in borrowing costs by the ECB on Sept. 12 is looking likelier after policymakers signaled their openness to such a move.
In Spain, the government has been phasing out assistance to offset the inflation that erupted after Russia invaded Ukraine, though it’s retained some initiatives — like free-public transportation for commuters.
The economy overall is in good shape as record tourism and strong exports deliver one of Europe’s fastest growth rates. Job creation is also strong, with unemployment near its lowest level in about 17 years.
Fiscal policy is providing a headwind, however. The government’s inability to pass a budget is hampering its economic goals, with last year’s spending plan being used until the political squabbling is settled.
--With assistance from Mark Evans and Aline Oyamada.
(Updates with German regional data, market reaction in fifth paragraph.)
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