Spain’s Inflation Reaches 3.2% in March as VAT Returns to 21% after Three-Year Absence

In March, Spain’s inflation rate accelerated to 3.2% year-on-year, a four-tenths increase from the previous month. The primary driver of this increase was the end of tax cuts on electricity and the return to a 21% VAT rate. This marked a significant rise in prices compared to February when they were 2.8% higher year-on-year.

The monthly price evolution has been on an upward trend since the beginning of the year, with prices rising by 0.1% in January, 0.4% in February, and 0.8% in March. This is the largest increase since February 2023. The underlying inflation also rose by 0.5% in monthly terms.

The provisional data released by the National Institute of Statistics suggests that underlying inflation, which excludes fresh food and energy products, will be moderated to 3.3%, the lowest rate in the last two years. This is a drop from 3.5% in February and the first time since 2022 that core inflation is above the general index.

The increase in prices is partly attributed to the restoration of the normal VAT rate on electricity and the rise in gasoline prices, as well as services like transportation and accommodation which have been driving price increases along with certain food products such as olive oil despite these increases; food prices in March rose less than they did in the same month last year.

Overall, while experts had predicted an even higher inflation rate due to supply chain disruptions caused by geopolitical tensions and other factors, they were surprised by how low it was overall with underlying inflation being moderated compared to recent months.

Despite this positive news for consumers, some experts warn of potential inflationary pressures building up over time especially within services sector which accounts for more than half of Spanish GDP.

It’s important for businesses to keep a close eye on inflation rates and adjust their pricing strategies accordingly while also ensuring profitability for themselves and competitiveness within their markets.

Inflation continues to be a major concern for governments across Europe as it can lead to social unrest if left unchecked or if not managed properly could impact economic growth negatively leading to slowdowns or recessions.

By Samantha Johnson

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