Spanish Inflation Reaches 3-Year High

According to data released by Spain’s Office of National Statistics, Spanish inflation jumped to a three-year high in December 2016. The annual change in the consumer price index reached 1.6% in December, up 0.9% from the previous month.

Meanwhile, the annual change in the Harmonized Index of Consumer Prices hit 1.4%–a substantial boost on the below zero figures posted in the last two years, worldfinance.com reported.

The nation has continued to struggle with high unemployment levels since the Global Financial Recession, with rates currently around 19%. While wage pressures remain low, inflation has seen a boost as a result of rises in the cost of travel and housing.

The European Central Bank’s recent decision to maintain a loose monetary policy and extend its stimulus program is likely to be a key factor in supporting inflation across the eurozone–which is currently at a three-year high of 1.1%. However, the ECB’s target of just under 2% remains distant.

When ECB president, Mario Draghi, announced the policy in December, he signaled the stimulus program could be extended–in either size or duration–should the outlook turn “less favorable”. However, the prospect of Spain or the wider eurozone being hit by high inflation is unlikely.

When asked whether the ECB might reduce the size of the program should developments fair better than expected, Draghi all but dismissed this possibility: “We haven’t discussed that at all today. We seem to be fairly far away from any such high-class problem.”

Governing Council member, Francois Villeroy de Galhau, reaffirmed this view on January 12, telling Bloomberg: “Some people seem to be worried about a return of inflation… that’s greatly exaggerated.”

Meanwhile, European equities were trading in positive territory on Friday as Spain posted its highest rate of annual inflation in more than three years, traders digested a mixed session in Asia and financial services and media stocks advanced.

The pan-European Stoxx 600 Index was 0.38% higher, London’s FTSE 100 Index was up by 0.36%, Frankfurt’s DAX was up by 0.42% and Paris’ CAC-40 was 0.52% higher.

In Germany, home to Europe’s largest economy, wholesale prices fell by 1.0% on an annual average in 2016 from the preceding year, according to the nation’s federal statistics agency, Destatis. Investors were also looking ahead to a possible speech which could be delivered by Britain’s prime minister next week regarding the country’s negotiations on its withdrawal from the European Union.