Inflation in Spain sped up to 3.6% year-on-year in July, marking the worst figure since May 2024, as rising fuel prices and a surge in energy tariffs brought on by the summer heatwave put further pressure on the country’s economy.
The main driving force was a sharp increase increase in fuel and electricity prices caused by instability in the Middle East and the partial blockade of the Strait of Hormuz resulting from the US and Israeli war against Iran. In addition, record-breaking heat during the height of summer forced consumers to use air conditioning on a massive scale, pushing wholesale electricity prices above €100 per MWh.
On average, electricity prices in July remained at around €105 per megawatt-hour, marking the largest year-on-year increase since the same month in 2022, following the outbreak of the conflict in Ukraine. However, whilst four years ago the cause was a gas shortage, today the geopolitical upheavals have been compounded by a climate-related threat.
In a bid to ease the financial burden on the public, the Ministry of Economy has introduced an automatic cut in the hydrocarbons tax. As diesel prices have soared by more than 15% over the past year, pushing overall inflation up by 0.7% points, a sharp reduction in the tax on hydrocarbons has been automatically triggered. For consumers, this means a substantial discount, with the tax deduction per litre of fuel instantly rising from 5 to 20 cents.
Although there were some positive trends, mainly in the grocery sector. The average cost of the basic consumer basket in July still fell by three-tenths of a percentage point, easing the pressure on household budgets slightly. Prices remain on the rise, yet at a somewhat slower pace, but fruit, vegetables and pulses, as well as textiles, have fallen in price thanks to the summer sales.
“The inflationary pressure has not been passed on to food, where the year-on-year rate was 1.6%, three-tenths of a point below the June rate and a low not seen since 2021,” according to the Ministry of Economy.
