EU-harmonised rate falls to 2.4% in January, easing cost pressures while core inflation holds steady at 2.6%

Spain’s inflation slowed markedly at the start of the year, offering a welcome respite for households and policymakers alike. Fresh data released this week show that the country’s EU-harmonised inflation rate fell to 2.4% in January, its lowest level since early spring of last year. The drop reflects a broad easing in price pressures, led primarily by falling energy costs, and signals a shift toward a more stable economic environment after months of persistent volatility.

The cooling trend comes as a relief to Spanish families who have been navigating elevated living costs throughout much of the past year. While wage growth has gradually strengthened across several sectors, many households have struggled to keep pace with higher prices for utilities, transport and food. The January reading suggests that the worst of the inflationary squeeze may be receding, at least for now.

Energy prices were the principal driver behind the slowdown. Electricity and fuel costs declined compared with the same period a year earlier, reversing the upward pressures that had weighed heavily on consumer budgets. Analysts point to milder winter conditions, stabilising wholesale gas markets and improved supply dynamics across Europe as key contributors to the decline. Lower energy input costs have also eased financial pressure on businesses, particularly in energy-intensive industries such as manufacturing and transport.

The moderation in headline inflation has translated into a gradual improvement in purchasing power. Retailers report steadier consumer sentiment compared with the closing months of last year, when price uncertainty dampened spending. Although confidence remains cautious, the latest figures may bolster household expectations that price stability is returning.

Despite the encouraging headline figure, underlying price dynamics tell a more nuanced story. Core inflation, which excludes volatile items such as energy and fresh food, remained stable at 2.6% in January. This suggests that while external cost shocks are fading, domestic price pressures tied to services and labor costs are proving more persistent.

Service-sector prices in particular continue to reflect strong demand and higher wage settlements. Tourism-related activities, hospitality and certain professional services recorded moderate increases, underscoring the resilience of Spain’s domestic economy. Economists caution that a stable core rate indicates inflation has not fully subsided and that vigilance remains necessary.

For policymakers, the latest data offer a delicate balance. On one hand, the drop in the EU-harmonised rate supports the case that restrictive monetary conditions across the euro area are gaining traction. On the other, the firmness of core inflation may limit the scope for rapid policy easing. European Central Bank officials have repeatedly emphasised the importance of sustained evidence before adjusting interest rates, and Spain’s figures will feed into that broader assessment.

The energy-driven nature of the slowdown also highlights the interconnectedness of Spain’s economy with broader European and global markets. Improved supply chains, diversified energy sources and ongoing investments in renewables have strengthened resilience against external shocks. Spain’s significant expansion in wind and solar generation capacity has helped cushion the impact of global fuel price swings, contributing to greater price stability over time.

Business groups have welcomed the January figures, noting that predictability in input costs is critical for investment planning. Small and medium-sized enterprises, in particular, stand to benefit from lower utility bills and steadier financing conditions. Some industry representatives argue that sustained moderation in inflation could unlock postponed expansion projects and hiring decisions.

Labor unions, meanwhile, maintain that wage agreements must continue to reflect the cumulative impact of past price increases. Although inflation has cooled, workers’ real incomes only gradually recover lost ground. Negotiations in key sectors are therefore likely to remain attentive to both the latest data and longer-term cost trends.

Financial markets reacted calmly to the release, interpreting the figures as broadly in line with expectations. Bond yields remained stable, while equity markets showed modest gains amid optimism that economic conditions are normalising. Investors appear to view the January reading as confirmation that Spain is navigating a controlled descent from higher inflation rather than facing renewed volatility.

Looking ahead, economists stress that the trajectory of energy markets will remain a decisive factor. Geopolitical developments, weather patterns and global demand dynamics could all influence price movements in the months to come. However, the structural improvements achieved over the past year provide a measure of insulation against abrupt swings.

Food prices, another major concern for consumers, have shown signs of gradual moderation, though not to the same extent as energy. Supply adjustments and stabilising commodity markets have tempered earlier surges, but certain categories remain elevated compared with historical norms. This uneven pattern underscores the complexity of the inflation landscape.

For households, the tangible effect of the January slowdown lies in everyday expenses: slightly lower utility bills, steadier fuel costs and fewer abrupt price changes at the checkout. While no single month defines a trend, the latest reading strengthens hopes that inflation is settling closer to levels consistent with medium-term price stability.

As mid-February unfolds, the broader narrative is one of cautious optimism. Spain’s economy continues to expand at a moderate pace, supported by resilient consumption and investment. The cooling of inflation reduces uncertainty and enhances planning capacity for businesses and families alike.

Yet challenges persist. Structural factors such as housing supply constraints and service-sector wage dynamics may keep certain price components firm. Policymakers will therefore weigh incoming data carefully, balancing the benefits of easing pressures against the need to secure lasting stability.

In sum, Spain’s January inflation figures mark a significant step toward normalisation. The sharp fall in the EU-harmonised rate to 2.4%, combined with a steady core reading of 2.6%, paints a picture of an economy transitioning from externally driven price shocks to more contained domestic dynamics. If energy markets remain favorable and underlying pressures continue to stabilise, the months ahead could consolidate this progress.

For now, consumers and businesses alike can take measured comfort in the latest numbers. After a prolonged period of elevated costs, the easing of inflation signals that relief—while gradual—is increasingly tangible