Iran War Sends Spanish Inflation Soaring to 3.3%

Unexpected Surge Shakes Spanish Economy

Consumer prices in Spain registered a year-on-year increase of 3.3% in March, according to the preliminary indicator published by the National Statistics Institute (INE). The figure represents a jump of one percentage point compared to February's 2.3% and marks the highest rate since June 2024, when the country was still reeling from the energy price hikes caused by Russia's invasion of Ukraine.

The main driver of the rebound is the price of fuels and lubricants, which has skyrocketed as a direct consequence of the war in Iran and the partial blockade of the Strait of Hormuz, an artery through which nearly a third of the world's seaborne oil transits. Brent crude exceeded $119 a barrel in early March, while natural gas in Europe rose by more than 50%, according to data from the Dutch TTF index.

Core Inflation Holds, but Pressure Grows

Core inflation—which excludes energy and fresh food—remained stable at 2.7%, indicating that the shock is, for now, predominantly energy-related. However, analysts and Euronews themselves warn that rising fuel costs are already filtering through to the transport and distribution costs of food, threatening to broaden the inflationary base in the coming weeks.

The Bank of Spain has raised its average inflation forecast for 2026 by nine tenths of a percentage point, placing it at 3%, and has warned that in a scenario of prolonged conflict, the rate could climb to 5.9%, a figure that would evoke the energy crisis of 2022.

€5 Billion Shock Package

The government of Pedro Sánchez approved a €5 billion anti-crisis plan on March 20, consisting of 80 measures, including:

• Reduction of VAT on fuels to 10%.
• 60% reduction in electricity taxes.
• Natural gas VAT fixed at 10%.
• Freezing of butane and propane prices.
• Direct aid to vulnerable households and small businesses.

The Ministry of Economy stressed that Spain's commitment to renewable energy—which already sets the electricity price 84% of the time, compared to 25% in 2019—acts as a "partial shield" against the external shock, allowing electricity to fall while oil rises.

European Implications and a Look to the Future

The Spanish data anticipates tensions throughout the Eurozone, whose first reading of March inflation will be published next week. ECB President Christine Lagarde warned that markets may be being "excessively optimistic" about the economic impact of the conflict, and bets on an interest rate hike at the next ECB meeting are increasing.

For lower-income Spanish households, the blow is disproportionate: spending on heating, transport and food represents a larger portion of their budget. If the Strait of Hormuz crisis is not resolved in the second quarter, Spain could face a scenario of stagflation that complicates the recovery of employment and growth, currently estimated at 2.3% of GDP for 2026.