The consumer price index (CPI) declined to 3.3 percent on an annual basis in March, cutting nearly in half from the prior month and falling to levels not seen since August 2021. This improvement, reported by the National Statistics Institute (INE), is partly attributed to lower electricity prices and fuels, as well as the comparison with March of the previous year when inflation was higher. The result marks one of the lowest CPI readings in recent years.
A year earlier, the economy faced a sharp shock from the Ukraine war, which produced a 3 percent month-over-month increase and the steepest advance in 45 years. Twelve months later, analysts describe a still-resolute base effect, with overall inflation easing while shoppers continued to feel higher prices for groceries and everyday items. The VAT removal on most basic foods and a 10 percent to 5 percent reduction in oils and pastes contributed to the slower pace. Compared with February, the CPI rose by 0.4 percent.
As a consequence, core inflation—excluding energy and unprocessed food prices—fell by ten basis points from February to 7.5 percent, the lowest since September of the previous year, according to INE data. Food prices surged to a record 16.6 percent, while the broader inflation gauge without energy showed a similar trend, around 7.6 percent. The persistence of elevated core inflation signals that the rise in shopping cart costs, which had followed earlier energy-price relief, continues to feed into broader price movements shaped by the Ukrainian conflict.
Government sources describe the inflation trajectory as favorable for competitiveness among Spanish companies, even amid a challenging international economy. They point to gains in market share and stronger exports as evidence. Officials also attribute the decline in overall price levels to the impact of a gas price cap on electricity generation, a measure set to expire in May and potentially extend through year-end pending Brussels’ approval.
Analysts expected a more pronounced CPI decline in the first half of the year against the same period in 2022, which experienced a notable spike. CaixaBank Research notes that a base or step effect is likely to exert downward pressure on inflation during the first half of 2023, with the pace easing further in the second half as 2022’s high readings drop out of the annual comparison.
Looking ahead, the inflation trend may stabilize in the coming months after an average rate of 8.5 percent traditionally tied to the peak in 2022, and a 10.8 percent high last July. In its latest outlook, the central bank raised growth expectations for the current year to about 1.6 percent while revising inflation downward to roughly 3.7 percent. Forecasts from 19 institutions and labor services compiled by Funcas suggest inflation averaging near 4 percent this year, slightly below the 2022 pace and closer to 3.7 percent than to 5.7 percent from the prior year.
Core inflation rose by five-tenths of a point to an annual average of 4.5 percent, reflecting persistent price pressures in non-energy and non-food components. The easing of energy prices helped temper headline inflation, but underlying inflation remained a factor in the overall price dynamics, reinforcing the narrative of a gradual but uneven deceleration.
The European Central Bank, following the U.S. Federal Reserve, has pursued a path of rate increases since mid-2022. With six increases implemented, the policy rate has moved from around 0 percent to its current level near 3.5 percent, influencing lending costs such as the Euribor reference rate for variable-rate mortgages. This backdrop underscores the broader monetary environment shaping consumer prices and household finances across the euro area.