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Spain is feeling the economic squeeze of the Middle East conflict more sharply than most, with inflation jumping to its highest level since June 2014 and the cost of fuel, electricity, clothing and footwear all climbing. The government moved quickly on March 20, announcing a wide-ranging support package, but pressure is already mounting for it to go further.

 

The plan sets aside €5 billion for households and more than €2 billion in loan guarantees for businesses. It includes tax breaks on fuel, electricity and gas, along with targeted support for sectors hit hardest by the crisis, particularly road transport.

 

According to government estimates, the measures should shave between 0.8 and one percentage point off inflation figures in April, May and June.

 

That may not sound like much, and critics certainly don't think it is. The country's two biggest unions, CCOO and UGT, have called on the government to do significantly more. CCOO is pushing for free public transport and rent controls, while UGT is focused on expanding wage protection clauses and directing direct financial aid to those on the lowest incomes.

 

Consumer groups and opposition parties are also demanding additional action, and their frustration has been sharpened by news from Brussels. European Commission president Ursula von der Leyen warned this week that the crisis in the Middle East is already hitting Europe hard, pointing out that the EU has spent an extra €22 billion on fossil fuels in just 44 days of war, with nothing to show for it in terms of increased supply.

 

A full package of emergency energy measures is expected from the Commission in the coming days, ahead of an informal EU leaders' summit in Cyprus on April 23 and 24, with joint gas reserve planning for next winter expected to be high on the agenda.

 

Spain's decision to cut tax on diesel and petrol from 21% to 10% has been flagged by Brussels as the kind of measure that needs careful monitoring. Economic Affairs Commissioner Vladis Dombrovskis made it clear that fuel tax cuts must stay strictly temporary, though the Commission isn't opposed to them in principle.

 

The fuel price data published on Tuesday April 14 laid out the scale of the problem in stark terms. Diesel has shot up by 17.9% and petrol by 4.8%, making fuel by far the biggest single driver of household cost increases.

 

Government sources have said that further measures haven't been ruled out and that the current package was always intended as a first response rather than a final one. They pointed to Spain's experience during the Ukraine war, when seven separate relief packages were eventually introduced.

 

Forecasters at the Savings Banks Foundation, Funcas, are currently estimating that overall inflation could reach 4% in the coming months, although they acknowledge the picture remains uncertain and heavily dependent on how the conflict develops.

 

The IMF, meanwhile, is projecting that Spain will end the year at 3% inflation as a result of the war, with GDP growth trimmed slightly to 2.1%. The Bank of Spain has warned, however, that if the crisis drags on beyond this year, inflation could climb as high as 6%.