Spain’s Consumer Price Index (CPI) for July registered a 2.7% year-on-year increase, maintaining the preliminary figures released earlier. This follows a prior CPI rise of 2.3%.
The Harmonised Index of Consumer Prices (HICP) also stood at 2.7% year-on-year, consistent with the preliminary estimate. June had previously recorded a 2.3% increase.
Core Inflation Trends
Core annual inflation in Spain rose marginally to 2.3% in July from 2.2% in June. This slight increase aligns with the European Central Bank’s approach to maintain current policy during the summer period.
The latest inflation data from Spain, with the headline number rising to 2.7%, confirms what we have suspected. The European Central Bank has every reason to keep interest rates steady for the remainder of the summer. Core inflation also edged up to 2.3%, reinforcing the idea that the fight against rising prices isn’t over.
This Spanish figure is notably hotter than the average Eurozone inflation rate, which stood at 2.5% in the latest July flash estimate. This divergence suggests inflationary pressures are becoming uneven across the bloc, complicating the ECB’s future policy path. The steady disinflation we witnessed in late 2024 and early 2025 appears to be facing resistance.
Market Implications
For the immediate weeks, this points to a period of lower volatility in interest rate markets. With the ECB on a clear hold until at least its next meeting, traders should consider selling short-dated options on Euribor futures to harvest the premium decay. The certainty of a pause should suppress any major price swings until we get closer to the next decision point.
All eyes will now shift to the ECB’s governing council meeting on September 11th, 2025. This sticky inflation print increases the chance that ECB officials will adopt a more hawkish tone, pushing back against market expectations for rate cuts later in the year. A similar situation unfolded in late 2023, when the market got ahead of itself pricing in cuts that the ECB was not yet ready to deliver.
Therefore, while short-term volatility may be low, forward volatility looks underpriced. We believe positioning for a spike in volatility around the September meeting is a prudent strategy. Buying longer-dated options or calendar spreads that capture this event could prove profitable if the ECB signals that rates will stay higher for longer.
In the bond market, this data is a negative signal, particularly for peripheral government debt. The spread between Spanish government bonds and German Bunds, which had been tightening, could start to widen again. We see an opportunity in taking positions that bet on Spanish yields rising faster than their German counterparts.
