A drop in food prices contributed to the fall with items such as butter, milk, pasta, flour and chicken all becoming cheaper.
Preliminary estimates for Spain’s year-on-year inflation rate for July show a fall of 2.8%, down from 3% in June, according to the according to the National Statistics Institute (INE). This was the lowest figure in five months and less than analyst expectations of 3%.
The number was primarily due to falling food and electricity prices, although the cost of culture and recreation still increased at the same level as the previous year.
Food items such as butter, milk, pasta, chicken and flour all saw decreasing prices. This was mainly because of Spain’s temporary zero value added tax (VAT) rate on basic food items being extended until September 30 2024. This regulation was first implemented early last year.
Miguel Cardoso Lecourtois, chief economist for Spain at BBVA Research said: “It will be interesting to see whether the downward pressure on food prices is the beginning of a correction that could last for the next 12 months.
“Climate conditions over the winter and spring ended a drought, and could reverse some of the increases observed in prices over 2022 and 2023.
“Core inflation could be also directly benefiting from this trend if processed food is also being affected. Nonetheless, at this point, the July data could be a one off.”
Other industries such as domestic tourism and maritime transport are also continuing to see prices fall, as well as some tech products such as computers and mobile phones.
The year-on-year core inflation rate for July, which excludes food and energy prices due to inherent volatility, also fell to 2.8%, down from 3% in June. This was the lowest since January 2022. The month-on-month inflation figure for July dropped to -0.5%, from 0.4% in June. This was the largest fall since September 2022 and the first decrease in eight months.
Spain sees economic growth beat forecasts
Spain also reported its gross domestic product (GDP) numbers for the second quarter of the year on Tuesday, with the country seeing GDP grow 0.8% quarter-on-quarter during this period. Although this was the same as the last quarter, it was still above analyst expectations of 0.5%.
The figure was mainly boosted by services and goods export numbers rising 1.2%, although imports did decline 0.2%. Public administration spending also increased 0.2%, with household final consumption expenditure growing 0.3% as well.
Furthermore, the industrial sector advanced 0.4%, with construction growing 0.1% and manufacturing also inching up 1.1%. However, primary sectors fell 1.2%.
The year-on-year GDP growth rate for the second quarter was 2.9%, up from 2.6% in the previous quarter, while also being the fastest growth rate in more than a year.
According to the International Monetary Fund (IMF) in June: “With a growth rate of 2.5% in 2023 and continued solid activity momentum, the Spanish economy has demonstrated remarkable resilience to elevated global uncertainty and tighter financial conditions. Robust services export performance and public consumption have been the main drivers of recent growth.
“The labour market has sustained its strong performance, including due to significant migration inflows and increasing labour force participation. Nevertheless, despite its most recent pickup, investment is still below end-2019 levels, and this weakness has contributed to low productivity growth. And despite its significant decline, the unemployment rate remains the highest in the euro area.”