Spanish Inflation Tick Up Unlikely to Derail ECB Rate Cut

Despite a surprise increase in Spain's inflation rate, the European Central Bank (ECB) is still expected to cut interest rates later today, as reported by The Wall Street Journal.

Spain's harmonized inflation rate, measured to EU standards, rose to 2.9% in January, up from 2.8% the previous month. This increase, exceeding the 2.5% forecast by economists, was driven primarily by base effects in fuel prices and a sharper rise in electricity costs. However, core inflation, which excludes volatile energy and food prices, fell back to 2.4% after a slight increase the month before.

This development comes despite a robust Spanish economy that significantly outperformed its European counterparts last year, expanding by 3.2%. However, the ECB's focus remains on the broader eurozone where inflation is trending below 2%, the level deemed optimal by the central bank. Moreover, the region is grappling with weak confidence and a sluggish recovery in consumer spending.

Despite the unexpected rise in Spain's headline inflation, the ECB is widely anticipated to announce a fresh cut to borrowing rates during its meeting later today. This expectation is based on the overall eurozone picture where inflation is below the target and the economy is facing headwinds.