Spain’s consumer price index rose 2.3% year on year in January. That was below the 2.4% expected.
The data suggests inflation eased slightly versus forecasts. The release did not include further details.
Spain’s lower-than-expected January inflation (2.3%) suggests price pressures in the Eurozone may be cooling faster than markets expected. This supports the view that the European Central Bank (ECB) could shift to a more dovish stance sooner. For us, that means reviewing positions that are sensitive to ECB rate policy.
This report also follows last week’s data showing Germany’s manufacturing PMI still in contraction, at 48.2. The ECB remains focused on bringing headline inflation—2.7% in December 2025—back to its 2% target. Softer inflation in a major member like Spain strengthens the case for rate cuts.
In the coming weeks, we should consider positioning for lower rates later on the curve. Options include interest rate swaps that benefit from falling rates, or call options on government bonds such as German Bunds. Markets currently price about a 40% chance of a rate cut by the third quarter; this data could push that probability higher.
This shift could also weaken the euro, since lower rate expectations reduce a currency’s appeal. We could look at EUR/USD put options, with strikes below the current spot, to hedge or to position for a decline. A similar setup in the second half of 2025—after softer inflation data from France—was followed by a 2% drop in the euro over the next month.
We should also remember the false signals from mid-2025, when falling energy inflation was offset by sticky services inflation. The key near-term focus is the flash HICP inflation estimate for the full Eurozone, due in about two weeks. That release will help confirm whether Spain’s cooling is local or part of a broader trend.
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