Spain’s Inflation Reaches 3.2% in March as VAT Returns to 21% after Three-Year Absence

Unprecedented Hike in Spanish Inflation Rate Due to Energy and Tax Factors

In March, the annual inflation rate in Spain reached 3.2%, a 40% increase from the previous month. The hike was caused by several factors, including the end of tax cuts on electricity and the return to a 21% VAT rate. This marked a significant rise in prices compared to February when they were only 2.8% higher year-on-year.

The monthly price evolution has been on an upward trend since January, with prices increasing by 0.1%, 0.4%, and 0.8% respectively. This is the largest increase since February 2023, and it has been driven by rising services, such as electricity and gasoline, as well as certain food products like olive oil. Despite these increases, food prices in March rose less than they did in the same month last year.

According to provisional data released by the National Institute of Statistics, the underlying inflation rate, which excludes fresh food and energy products, will be moderated to 3.3%, the lowest rate in the last two years. This is a drop from 3.5% in February and marks a reversal of trend compared to recent months. However, experts warn that inflationary pressures may still persist in various sectors, particularly services like healthcare and education.

Overall, while the inflation rate in March exceeded expectations due to rising energy costs and tax cuts ending for electricity, it was not as high as some had anticipated due to lower food prices compared to last year’s period.

In conclusion, despite concerns about rising prices for goods and services across Spain’s economy, it appears that underlying inflation remains relatively low due to government policies aimed at addressing price increases through taxes on energy products such as electricity and gasoline.

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