Unexpected Rise in Core Inflation in Spain Amid Disinflationary Trends

In June 2025, Spain experienced an unexpected increase in core inflation, with figures rising from 2.0% to 2.2%, as reported by the National Statistics Office (INE). This uptick occurred alongside stable headline inflation, which held steady at 2.2%. Economists and analysts are scrutinizing this development, noting that while the core inflation's rise is surprising, broader disinflationary forces are anticipated to keep inflation levels near the European Central Bank's (ECB) target of 2% for the year.

The monthly inflation rate increased by 0.6%, primarily driven by a rebound in fuel prices, which had seen a decline in June 2024, alongside increasing food prices. Notably, unprocessed food prices surged by 7% year-on-year in May, influenced by rising global food commodity prices, according to a statement by Ruben Dewitte, an economist at ING Group.

Despite the recent uptick, disinflationary pressures persist, as highlighted by the appreciation of the euro, which has contributed to reducing import prices. The nominal effective exchange rate for the euro area rose by 3.6% year-on-year, with a modest 2% increase for Spain specifically. As noted by the ECB in their research, such exchange rate movements typically have a significant impact on import prices, albeit with limited effects on consumer prices. Additionally, the energy component of inflation has shown a downward trend, with euro-denominated oil prices falling by 20% since the beginning of 2025, primarily due to declining global oil prices and the strengthening euro.

However, geopolitical tensions, particularly the recent Israel-Iran conflict, pose risks to energy prices, which could reverse current downward trends. Any escalation affecting the Strait of Hormuz could lead to significant disruptions in oil supplies, thereby impacting inflationary pressures.

Experts are projecting a potential temporary uptick in inflation during the summer tourist season, which traditionally impacts demand and prices. Nevertheless, the overall forecast remains optimistic, with predictions suggesting that headline inflation will ease to an annual average of 2.3% in 2025. This outlook is supported by broader disinflationary trends observed in the manufacturing sector, where recent Purchasing Managers' Index (PMI) data indicated a decline in manufacturing output prices—the steepest since September 2024.

In conclusion, while June's data reveals an unexpected rise in core inflation, the prevailing disinflationary forces and economic fundamentals suggest a cautious but stable inflationary outlook for Spain in the coming months.