Spain's inflation surged to 4.3% in August, with fuel prices as the main driver

(1) Spain's Consumer Price Index rose by approximately 4.3% year-on-year in August, a significant acceleration from around 3.6% in July, reaching the highest level since February 2023. The main reason was a sharp increase in the prices of fuel and personal motor vehicle lubricants, while last year prices for these products actually declined during the same period. (2) Food and non-alcoholic beverage prices also contributed to upward inflationary pressure, though their impact was less significant than that of the energy sector. Meanwhile, core inflation eased moderately to around 2.9%, indicating that the energy shock has not yet fully spread to the broader pricing system. (3) The Ministry of Economy attributed the acceleration in August inflation to higher fuel costs driven by Middle East conflicts, but emphasized that this has not yet affected core inflation. The government stated it is closely monitoring the economic impact of the Iran conflict with all stakeholders and that current response measures remain effective. (4) Fuel tax concessions are gradually being phased out. In August, the hydrocarbon tax discount was €0.10 per liter, down from €0.15 in July. It was originally scheduled to fall to €0.05 in September and be completely eliminated in October. However, since diesel prices increased by more than 15% in July, a trigger clause raised the September diesel discount to €0.20 per liter, while the gasoline discount remains at €0.05. (5) Electricity and natural gas are still subject to the standard 21% VAT rate, as their prices did not reach the 15% threshold for tax reduction. On a monthly basis, prices in August rose approximately 0.7% compared to July, marking the seventh consecutive monthly increase and indicating continued accumulation of inflationary pressures.