Spain inflation rate slows more than expected in May

Spain's annual inflation rate decelerated for the third consecutive month in May 2025, reaching 1.9%, its lowest level in seven months and falling short of the market consensus of 2.1%, according to preliminary data released by the National Statistics Institute (INE). The easing of price pressures suggests that disinflationary forces continue to take hold in the Spanish economy, reinforcing expectations of further monetary easing by the European Central Bank in the coming months.

Spain inflation rate slows more than expected in May

The deceleration was largely driven by a notable decline in prices for leisure and culture, which had seen a pronounced increase during the same month in 2024 due to post-pandemic pent-up demand and a surge in travel-related activities. The base effect from that spike contributed significantly to the downward pressure on this year’s annual rate. In addition, transportation costs declined more sharply compared to the same period last year, likely due to falling fuel prices and subdued demand in the automotive sector, which has been affected by persistent price competition and weaker consumer sentiment. Electricity prices, while still rising, did so at a slower pace, adding only modestly to the overall price level and marking a continued retreat from last year’s energy-driven inflation surge. Core inflation, which strips out volatile components such as food and energy, also moderated, easing to 2.1% in May from April’s three-month high of 2.4%. The decline in core inflation is particularly significant for policymakers, as it points to a broad-based cooling in underlying price pressures across sectors and may alleviate concerns about wage-price spirals or entrenched inflation expectations. On a monthly basis, consumer prices were unchanged in May, following a 0.6% increase in April. This result also came in below market forecasts, which had anticipated a modest 0.1% rise. The flat reading reflects seasonal stability in prices and suggests that inflation momentum has slowed, at least temporarily, as household spending softens and supply chains normalize further.

Harmonised figures

When viewed through the lens of the EU-harmonised index of consumer prices (HICP)—a key measure for ECB policymaking—Spain's inflation rose 1.9% year-on-year, below expectations of a 2.0% increase. On a monthly basis, HICP declined 0.1%, defying analyst forecasts that had pointed to a flat reading. This divergence between actual data and market projections may further strengthen the case for the ECB to deliver a widely anticipated interest rate cut at its upcoming meeting, particularly as inflation across the broader eurozone also appears to be cooling. Looking ahead, analysts expect inflation in Spain to remain subdued over the summer months, supported by lower energy costs, steady food prices, and cautious consumer behavior. However, risks remain, including potential global supply disruptions and the impact of geopolitical tensions, particularly in energy markets, which could once again alter the inflation outlook. For now, though, the May figures provide reassurance that Spain is moving toward a more stable price environment after the turbulence of recent years.