Spain’s Consumer Price Index (CPI) for July showed a 2.7% increase year-on-year, matching earlier estimates. This follows a 2.3% rise in the previous month. The Harmonised Index of Consumer Prices (HICP) also reported a 2.7% increase year-on-year, consistent with preliminary figures. June’s increase had been 2.3%.

Core Inflation Trends

In July, core annual inflation in Spain ticked up slightly to 2.3%, up from 2.2% in June. This small rise supports the European Central Bank’s strategy to maintain current policies during the summer. The latest inflation numbers confirm what many expected: the ECB is likely to keep interest rates steady for the rest of the summer. With core inflation now at 2.3%, it’s clear that the battle against rising prices is far from over. Spain’s inflation rate is notably higher than the average of 2.5% for the Eurozone in the latest July estimate. This difference indicates that inflation pressures are not uniform across the region, making it harder for the ECB to decide on future policy. The steady decrease in inflation we saw in late 2024 and early 2025 seems to be losing momentum.

Market Implications

In the coming weeks, we should see lower volatility in interest rate markets. Since the ECB plans to hold rates steady at least until their next meeting, traders might find value in selling short-dated options on Euribor futures to benefit from the decay of option premiums. The certainty of this pause should minimize significant price changes until the next decision approaches. Attention will turn to the ECB’s governing council meeting on September 11, 2025. This persistent inflation rate increases the likelihood that ECB officials will be more hawkish, possibly pushing back against expectations of rate cuts later this year. A similar situation occurred in late 2023 when the market anticipated cuts that the ECB wasn’t ready to implement. While short-term volatility may remain low, forward volatility might be underestimated. Positioning for a spike in volatility around the September meeting seems wise. Buying longer-dated options or calendar spreads that cover this event could be profitable if the ECB hints at maintaining higher rates for a longer period. In the bond market, this data is a negative sign, especially for peripheral government debt. The gap between Spanish government bonds and German Bunds, which had been narrowing, could begin to widen again. We see a chance to take positions that bet on Spanish yields increasing faster than those in Germany. Create your live VT Markets account and start trading now.

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