Spanish inflation nearly halved in a month to 3.1% in March as energy costs fell, which could be an early sign of a sharp decline in headline inflation in Europe this year.
The year-on-year rise in Spanish consumer prices from the previous month’s rate of 6% and was lower than the 4% forecast by economists polled by Reuters.
This decline will likely ripple across Europe, with lower energy prices impacting consumer gas and electricity costs. German inflation figures are due later on Thursday and French figures on Friday.
The drop in the headline figure is expected to bolster calls for the European Central Bank to stop raising borrowing costs at its next meeting in May.
Europe’s Stoxx 600 index rose 0.8% from the previous day’s close on Thursday morning, while Spain’s Ibex 35 index rose 1.5%.
Spain served as a leading indicator during mounting inflationary pressures in Europe last year, as its energy prices react more quickly to wholesale market movements than other countries. The European gas price was €43 per megawatt hour on Thursday, compared to €175 six months ago.
However, March prices were still 1.1% higher than the previous month. Core inflation, excluding energy and fresh food prices, eased slightly to 7.5%.
Even before the Spanish figures, some members of the ECB’s governing council had called on the ECB to adopt a more cautious approach after raising interest rates by half a percentage point this month.
The turmoil in the banking sector has also raised the prospect of a possible credit crunch which could dampen both inflation and growth in the coming months.
However, more hawkish board members say the ECB needs to take heed of sharp swings in energy prices and focus on underlying price pressures.
Isabel Schnabel, the most hawkish member of the ECB’s executive board, said at an event in Washington on Wednesday evening that core inflation had turned out to be stickier than expected and that this was “causing headaches for central bankers”.