Spanish inflation holds at three-year high ahead of November election

Spain’s annual inflation rate stayed at 4.9 per cent in October, its highest level since February 2023, according to provisional official figures published on Friday. The data, reported by The Local Spain, comes one month before a snap general election in which the cost of living is expected to be a major issue.

What happened

The Instituto Nacional de Estadística (INE), Spain’s national statistics institute, released a provisional October inflation figure of 4.9 per cent. That is the same as September’s figure. According to the INE, rising prices for gas and other fuels kept inflation high, even though some everyday items cost less than a year earlier, including food, non-alcoholic drinks and clothing.

The Local Spain links the rise in energy costs to the war in the Middle East, which began in February with US-Israeli strikes on Iran. The conflict has disrupted key oil and gas supply chains, notably through the effective closure of the Strait of Hormuz, and has unsettled global energy markets. Spain depends less on fossil fuel imports than other major economies because it uses nuclear and renewable energy, but the swings in oil and gas prices have still pushed inflation up.

To protect consumers, the left-wing government of Socialist Prime Minister Pedro Sánchez introduced a 15 per cent cap on increases in natural gas prices, along with discounts on fuel, through to December. These are national measures, not regional ones.

The INE also reported that the economy grew by 0.6 per cent between July and September, mostly thanks to internal demand. Growth in the second quarter was 0.7 per cent. Earlier this month, the Banco de España (Bank of Spain, the country’s central bank) forecast growth of 2.6 per cent for this year, pointing to resilient household spending. The government has regularly used Spain’s strong growth to defend its record.

Despite that growth, The Local Spain reports that the cost of living, and especially Spain’s long-running housing crisis, remains a key concern for voters. Protests over housing culminated in Sánchez calling a snap general election (elecciones generales anticipadas) for 29 November.

Pedro Aznar, a professor at the Esade business school, told AFP that “the clearest threat to growth comes from rising prices”. He added: “For now, the growth of employment and wages are compensating for the negative impact of the rise in the cost of living.” ING analyst Pablo Muylle said that, with inflation and housing costs weighing on purchasing power, “the government is receiving relatively little electoral benefit from the country’s macroeconomic outperformance”.

What it means for you

If you live in Spain, energy is the main pressure on your budget. According to the INE, gas and other fuels are the main reason inflation stayed high in October. Food, non-alcoholic drinks and clothing were cheaper than a year earlier.

• Gas bills: the government’s 15 per cent cap limits how far natural gas prices can rise. If you heat your home or cook with gas, check whether your bills reflect the cap.
• Fuel: discounts on fuel are in place through to December. If you drive, budget for the possibility that this support ends after that.
• Housing: The Local Spain describes housing costs as a central part of the cost-of-living problem. Renters and buyers should expect housing to stay high on the political agenda during the campaign.

Both support measures were introduced by the national government, so they apply across Spain and do not depend on which region you live in.

What to watch next

• The general election on 29 November: the cost of living and housing are expected to dominate the campaign, and the outcome could shape future energy and housing policy.
• The end of the support measures: the gas price cap and fuel discounts currently run through to December. Watch for any announcement on whether they will be extended or allowed to expire.
• The final October inflation figure: the 4.9 per cent figure is provisional, and the INE will confirm or revise it later.
• Energy markets: the effect of the Middle East conflict on oil and gas supplies, including through the Strait of Hormuz, is the main factor keeping Spanish inflation high.

Source: The Local Spain