Preliminary estimates from Spain’s National Statistics Institute (INE) indicate a year-on-year inflation rate of 2.8% for July, down from 3% in June. This marks the lowest inflation rate in five months and is below the expected 3%. The decline is attributed primarily to reduced prices for food and electricity, although costs in the culture and recreation sector remained unchanged compared to the previous year.
Significant drops were observed in the prices of essential food items such as butter, milk, pasta, chicken, and flour. This reduction is largely due to the extension of Spain’s temporary zero value-added tax (VAT) on basic food products, initially implemented early last year, which will remain in effect until September 30, 2024.
Miguel Cardoso Lecourtois, Chief Economist for Spain at BBVA Research, noted, “It will be interesting to determine whether this downward pressure on food prices indicates the start of a longer-term correction. Improved climate conditions have ended a drought, which might counteract some of the price increases seen in 2022 and 2023. However, July’s data could potentially be an anomaly.”
Other sectors also experienced price decreases, including domestic tourism, maritime transport, and certain technology products such as computers and mobile phones. The core inflation rate, which excludes food and energy prices, also fell to 2.8% in July, the lowest level since January 2022. Additionally, the month-on-month inflation rate for July dropped to -0.5%, marking the largest decline since September 2022 and the first decrease in eight months.
Spain’s gross domestic product (GDP) grew by 0.8% quarter-on-quarter in the second quarter of 2024, matching the growth rate of the previous quarter and surpassing the analyst expectation of 0.5%. This growth was driven by a 1.2% increase in services and goods exports, despite a 0.2% decline in imports. Public administration spending rose by 0.2%, while household consumption increased by 0.3%. The industrial sector saw a 0.4% rise, with construction up by 0.1% and manufacturing growing by 1.1%. However, primary sectors declined by 1.2%.
The year-on-year GDP growth rate for the second quarter was 2.9%, up from 2.6% in the previous quarter and the fastest growth in over a year. The International Monetary Fund (IMF) noted that Spain’s economy has shown resilience to global uncertainty and tight financial conditions, with robust service exports and public consumption driving recent growth. Despite improvements, investment levels remain below pre-2019 figures, contributing to low productivity growth and the highest unemployment rate in the euro area.
