Spain closed December with an inflation rate of 2.9%, exactly the same level with which it began the year, according to advance data for December published on Tuesday by the National Statistics Institute (INE). This circular price movement, despite the ups and downs of the year, brings with it more questions than answers about the evolution of prices in the country, competitiveness and the recovery of household purchasing power.
Although annual inflation moderated its pace in December compared to November, thanks to the fall in fuel prices, the closing of the year with the same rate as at the beginning of the year prevents us from speaking of a complete normalization towards the European Central Bank’s (ECB) target of around 2%.
A year of ups and downs that ends in the same way
The inflation rate of 2.9% in December puts Spain exactly where it was in January 2025, closing a cycle that has been marked by ups and downs. During the spring, the data were particularly favorable, with notable declines in prices that suggested a stabilization of inflation. However, as the months progressed, this trend began to fade.
The final result is an annual average rate of 2.7%, slightly lower than that of the previous year (2.8%), although insufficient to achieve the stability target sought by the ECB. These developments raise the question of whether progress has really been made or whether prices are still anchored at levels higher than those desired by the European monetary authorities.
Electricity and its impact on prices
One of the factors that has had the most negative impact on inflation has been the behavior of electricity prices. BBVA Research has calculated that the price of electricity has increased by 8% since the April blackout, an episode that marked a turning point in the Spanish energy market.
This increase has not only impacted the costs of households and businesses, but will also have effects on the economy beyond inflation: BBVA estimates that it will subtract one tenth of a percentage point from GDP growth in both 2025 and 2026.
Paradoxically, despite the increase, the bank’s research department points out that “the price of electricity in the Spanish wholesale market is still more than 20% below what is paid in the rest of Europe”. This situation raises questions about domestic price dynamics vis-à-vis the rest of the euro zone, especially when competitiveness is a key objective for the Spanish economy.
The importance of energy prices according to CaixaBank Research
The weight of energy is also noticeable in the forecasts of other research services. CaixaBank Research warns that “the moderation of inflation in the coming months will depend largely on energy prices, especially electricity”.
Although the international outlook for energy is generally favorable, uncertainty persists at the domestic level. On the one hand, as of January, the Voluntary Price for Small Consumers (PVPC) will incorporate changes that should bring more stability to the price of electricity. On the other hand, the renegotiation of contracts in the free market could generate upward pressure, they add.
The April blackout and its energy consequences
The famous blackout that affected Spain at the end of April prompted the authorities to take preventive measures and resort more to the use of gas-fired power plants to avoid further power outages. This increased dependence on fossil fuels has contributed to higher electricity bills.
In addition, going into 2026, toll increases of 4% and 10.5% in charges have been announced, according to economist Javier Santacruz. These adjustments, associated with regulated costs, also push up energy prices, something that not only impacts overall inflation, but also the perception of costs in the real economy.
The gap with the euro zone and competitiveness
Experts such as Angel Talavera, chief economist for Europe at Oxford Economics, point out that the gap between Spanish inflation and the euro zone average is normal considering the stronger growth of the Spanish economy, which tends to overheat prices. Talavera explains that the most influential component in the long term is electricity, “which in the long run is expected to balance out”.
However, Talavera warns that “the gap represents a small loss of competitiveness, which, if it is maintained for a long time, does begin to pose a problem”. This inflation differential can have a negative impact on exporting companies, which see their costs rise faster than those of their European competitors.
Core inflation: a mixed signal
Core inflation (which excludes energy and unprocessed food) shows a steeper fall than headline inflation. Its decrease of six tenths of a percentage point compared to the 2.9% annual average in 2024 is one of the data that the Government has used to argue that Spain is closer to the ECB’s target.
This decline in core inflation indicates that core consumer prices, excluding volatile factors such as energy, are advancing at a more contained pace. However, the persistence of headline inflation at levels above 2% continues to be a source of debate and analysis among economists and policymakers.
Outlook for 2026 and 2027
Looking ahead, BBVA Research estimates that inflation will continue to moderate gradually in the coming years, with projections placing the rate at 2.5% in 2026 and 2.2% in 2027. This development would, according to analysts, help to recover the purchasing power of wages and boost private consumption.
BBVA Research’s Situation in Spain report stresses that, for this moderation to have a real effect on the household economy, growth in labor income will be essential. This growth will come mainly from job creation, but also from the progressive recovery of wages.
External factors supporting disinflation
In addition to internal dynamics, some external factors have contributed to price moderation. The performance of Brent crude oil, Europe’s benchmark, has moved close to yearly lows around $60 per barrel, easing pressures on energy costs.
Similarly, the price of natural gas has experienced significant declines in 2025, leaving almost half of its value and accumulating a drop of more than 90 % since its peak after the invasion of Ukraine. In addition, the strength of the euro against the dollar has made energy purchases abroad cheaper, helping to moderate imported costs.
The impact on pensions
One of the most visible consequences of this inflation that has not fully normalized will be the revaluation of pensions in 2026, which will finally be 2.7%. This figure is calculated taking as a reference the average inflation of the last twelve months, an indicator that reflects the continued presence of inflationary pressures in the daily economy of citizens.
