A jump in electricity prices linked to higher VAT rates is pushing up inflation in Spain. Upticks are being seen across the eurozone, although the causes are varied.
Spain’s CPI inflation rose at an annual rate of 3.6% in May, according to preliminary data released by the Instituto Nacional de Estadística (INE) on Thursday.
This follows recent year-on-year rises of 3.2% in March and 3.3% in April.
The annual rate of CPI had fallen by 0.6 percentage points between January and February this year, before it started to climb again.
The harmonised inflation rate (HICP), which allows for comparison between European member states, came in at 3.8% in May.
That’s up from 3.4% in April and slightly higher than a forecast of 3.7% given by Bloomberg-surveyed economists.
Spain’s statistics office explained the inflationary uptick by pointing to an increase in electricity prices, linked to the reinstatement of a 21% VAT rate in March.
In June 2021, the state had reduced this tax to 10% to help consumers with rising energy bills, although this was brought up again when wholesale electricity prices fell.
Spain is also planning to scrap reduced VAT rates on some staple food items later this year, a move that could push inflation figures higher.
If energy and some food costs are excluded from May’s inflation reading, the core figure sits at 3%, up only slightly from April’s core total of 2.9%.
This underlying increase was caused by price jumps for tourism-related services, such as holiday packages, air travel, and accommodation.
The flash figures released today will be confirmed on 13th June and INE will provide a more detailed breakdown of price fluctuations.
Thursday’s announcement came after Germany noted an uptick in inflation yesterday, with prices rising 2.8% in May (harmonised) compared to the same month a year earlier.
Unlike in Spain, monthly energy prices were down 1.1% on the year.
May’s rise was largely driven by the end of a cheap national railway ticket scheme introduced in Germany a year earlier.
Ireland’s harmonised inflation rate, also out today, showed an annual rise of 1.9% in May.
This was partially down to increases in transport costs, as energy and food prices were unchanged on the month.
Preliminary inflation readings for the whole eurozone are due tomorrow.
