Spain’s low inflation rate in February is good news for the wallet, but an increase in March due to the Iran war and energy prices will be a shock.

CONSUMERS in Spain will breathe a sigh of relief after the rate of inflation remained low throughout February – although fears are mounting that prices are set to surge in the wake of the ongoing war in Iran.

According to the National Statistics Institute’s figures, released on Friday, inflation remained at the same level of 2.3% in February as it was in January.

The three successive monthly falls of one tenth of a percent in November and December, as well as January, have ended, bringing the inflation rate down to its lowest value since last June.

Spain’s number is still above the 2% goal set by the European Central Bank.

The INE reports that inflation remained low thanks to a drop in energy costs, especially electricity.

However, the increasing cost of food and restaurant prices ensured a halt to the inflation trend.

That is evidenced by the rate of core inflation – a metric that excludes energy prices – which ticked up to 2.7% in February, one-tenth of a percentage point above January’s figure.

Economists are concerned that Spain’s relative peace could soon be over, with an increase in inflation projected for March due to the conflict in the Middle East.

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Raymond Torres of Funcas’ director of economics analysis says that inflation could reach between 3% to 3.5% in this month, as the effects of the war with Iran take hold.

Between March 2 and March 10, the average wholesale energy price in Spain jumped from around €18/MWh (megawatt-hour) to €137/MWh, according to data from Trading Economics – an increase of nearly 700 per cent.

This spike is due to the turmoil on global oil and gas markets following US and Israeli strikes against Iran earlier in the month.

Brent crude, the international benchmark for oil prices, spiked by nearly 29 per cent to nearly $120 (€103) during early market trading on Monday – a peak not seen since 2022 when Russia’s invasion of Ukraine rattled global markets.

The surge in demand came after Iran effectively closed down the Strait of Hormuz. It is an important maritime shipping route, through which about 20 percent of the world’s oil and liquid natural gas pass.

Key oil producers in the Gulf – including Kuwait, Bahrain and the UAE – also announced that they will cut production after Iranian drone strikes damaged several oil refineries across the Middle East.

Fuel prices have already increased for petrol and diesel.

Electricity prices and food prices, especially for products that heavily rely on fertilisers, are also knock-on effects.

All of these factors will increase the inflation rate.

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