Gas price agreement puts a ceiling to inflation surge in Spain

The EU has approved a joint proposal from Spain and Portugal to cap gas prices used in electricity generation. The agreement will limit gas prices for both countries initially to €40/MWh, rising over the next 12 months to an average €50 price.

What you will learn:

• We estimate the impact of this measure on Spain’s inflation will be relatively modest, lowering headline inflation by 0.5ppts over the year.
• We expect potential spill-over effects to other inflation categories will be small given this will mostly impact small retail consumers.
• The agreement effectively puts a ceiling on the current inflation surge and ensures that further rises in gas prices will not translate into inflation, which has risen to the highest level in decades.