Interest Rate Declines to 1.9% in May's Economic Data.
Spain's Inflation Softens in May
The harmonized index of consumer prices (HICP) in Spain, used for European comparison purposes, dropped to 1.9% in May, the National Statistics Institute (INE) announced on Friday. This figure is lower than the 2.0% experts predicted, following a 2.2% inflation rate in April.
This decline, the lowest in seven months, is attributed to decreases in leisure and culture prices, transportation costs, and slower electricity price increases. Consumer prices in Spain remained unchanged between April and May, after a 0.6% increase in April.
Economists expect the European Union's inflation rate to fall to 2.1% in May from 2.2% in April, a trend that brings the European Central Bank (ECB) closer to its target of 2.0% inflation. With a possible eighth interest rate cut imminent, an announcement widely expected by financial markets, the deposit rate could fall from the current 2.25% to 2.00%.
Data from the eurozone's fourth-largest economy contributes to the calculation of consumer prices across the euro area, due for release on Tuesday.
The easing inflation trend in Spain and the Eurozone suggests a more measured approach from the ECB regarding interest rates, potentially reducing the need for sharp rate hikes in the immediate term. The ECB's upcoming interest rate decisions in May and June will likely be cautious to maintain stability while keeping inflation expectations in check.
Sources: ntv.de, AFP
According to additional data, overall inflation forecasts for Spain and the Eurozone in May and June 2025 point to a gradual easing trend. Looking ahead, official economic forecasts project Spain's headline inflation to be around 2.3% for the entire year 2025 and then easing further to 1.9% in 2026. The ECB sets key interest rates primarily to control inflation and ensure price stability. The easing inflation pressures reduce immediate pressure on the ECB to continue aggressively raising interest rates, and a cautious approach to the key interest rate decisions in May and June 2025 is thus likely.
In light of the easing inflation trend in Spain and the Eurozone, the European Central Bank (ECB) might consider a more measured approach regarding interest rates, potentially reducing the need for sharp rate hikes in the near future. To maintain this stability and check inflation expectations, the ECB may adopt a cautious stance in its key interest rate decisions in May and June 2025, such as implementing community policies that encourage measures like vocational training to sustain employment and economic growth, while ensuring available finance supports these endeavors.
