Inflation in Spain slowed down: what does the market expect from the ECB?

Inflation in Spain slowed down sharply in March and stood at 3.3% year-on-yeardue to marking drop in electricity and fuel prices, according to a first estimate released this Thursday. What is expected of the European Central Bank?

The amount, which must be confirmed lateris “more than two and a half points below that registered in February” (6%), said the National Institute of Statistics (INE) in a statement.

According to him INE, the fall is explained by the evolution of the prices of electricity and fuels, which fell in March, after having climbed strongly in the same month of 2022, just after the Russian invasion of Ukraine.

He Harmonized Consumer Price Index (IPCA)which enables compare with other countries of the euro zone, also fell sharply, three points, to remain in 3.1%

The Underlying inflationwhich does not take into account some prices, such as energy, and which corrects for seasonal variations, is On the contrary, it remained high, at 7.5% year-on-year.one tenth less than in February (7.6%).

The slowdown in inflation in March occurs months after the elections legislation of 2023. In the last year, the government multiplied the budgetary measures to shore up purchasing power households, strongly affected by inflation, which last year averaged 8.4%.

What is expected of the European Central Bank

With inflation at 3.3% in March, Spain is in a much more comfortable situation than most of its neighbors in the euro zonewhere inflation stood at 8.5% year-on-year in February.

In its latest forecasts published in mid-March, the European Central Bank said he expects a gradual decline in inflation this year, which it should reach the end of the year at 5.3%.

“It is in this scenario that underlying inflation assumes a more relevant role, since it excludes from its calculation the prices of the products and services that rose the most as a result of the war in March 2022: energy and food prices. not processed. It is therefore, in the behavior of the underlying CPI in the month in which it is necessary to pay attentionjust as the members of the Governing Council of the ECB will do”, they explain in Link Securities.

The european markets are operating on the rise this Thursday -Ibex 35 (+1.8%), CAC 40 (+1.3%), DAX (+1.3%)- after knowing the slowdown in Spanish inflation and waiting for the data from the region, which could feed the hypothesis of a lower rate rise by the regional monetary entity. After the banking crisis, the violence of the rate hike by the ECB was put into discussion.

“The start looks good. If inflation were also to fall in the Euro Zone tomorrow, a general improvement would be confirmed of the price scenario and this would imply a new catalyst for stocks which is what we believe in”, they estimate at Bankinter.

“The market discounts two more increases to 3.5%, although we remember that before the financial instability (first week of March), it placed the ceiling at 4%,” they point out in Renta 4.

“In this sense, Isabel Schnabel of the ECB stated that there has not been an outflow of deposits from European banks, so you see the resilient sector for now. However, it does consider that there could be a certain tightening of credit conditions, and this in turn will reduce pressure on inflation, although it is still early to specify to what extent ”, they conclude in Renta 4.