Despite the recent peace agreement between the US and Iran, the Bank of Spain has raised its inflation forecast for 2026 to 3.6%, 0.6% than its March forecast of 3%.

The energy shock the closure of the Strait of Hormuz triggered has fed through into the price index that excludes the most volatile components, such as energy and unprocessed food.

The upward revision to the inflation forecast is mainly due to higher assumptions for energy prices, as well as increased prices for non-energy industrial goods and services, the Bank of Spain explained in the presentation of its quarterly report on the Spanish economy.

Although the Bank of Spain kept its GDP growth forecasts unchanged at 2.3% for 2026 and 1.7% for 2027, it expressed concern about "the inflationary element underlying growth" as a result of the energy price shock, which is rising more sharply than in the euro area.

"The component that concerns us is that the shock is feeding through more into underlying inflation," sources at the institution said. This is due to the inflationary "inertia" persisting in the services sector, in a context of strong demand for tourism and leisure, which helps explain the gap in price increases compared with other European countries.

As a result, Spain's services sector is seeing price rises in a segment that is typically more "sticky", according to the institution. However, they expect the resolution of the conflict in the Middle East to lead to a correction in non-energy industrial goods prices, which would help contain inflation.

Despite this, GDP growth highlights the resilience of the Spanish economy compared with the euro area, supported by robust domestic demand, although this is expected to ease in 2027.

In particular, private consumption and investment are expected to slow, affected by a backdrop of instability and geopolitical volatility that is holding back projects.

Job creation, which also remained strong in 2026, could likewise slow next year, although labour market resilience driven by economic momentum and migration flows is expected to maintain a steady pace.

Meanwhile, the unemployment rate is forecast to fall from 10.5% in 2025 to 10% in 2026 and 9.8% in 2027.

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