Inflation in Spain is expected to rise to 1.7% in the preliminary reading of the October CPI

• Spain will publish its inflation data this Wednesday at 08:00 GMT.
• An increase of 1.7% is expected in the annual Consumer Price Index (CPI).
• The Euro could react upwards with a result above expectations.

The Consumer Price Index (CPI) of Spain will be published by the National Institute of Statistics (INE) at 08:00 GMT this Wednesday. The market expects a rise in annual headline inflation to 1.7% in October’s year-on-year reading from 1.5% in September.

For the Harmonized CPI, an increase of 1.8% is expected compared to the previous 1.7%, while for the monthly indicator, an increase of 0.3% is estimated after falling 0.1% in September.

How does the CPI data influence the monetary policy of the European Central Bank?

The Spanish inflation data does not by itself have an impact on the monetary policy of the European Central Bank (ECB), since the entity takes into account the inflation figures of the euro zone as a whole. In any case, higher or lower inflation in Spain affects the Eurozone Consumer Price Index, so it is taken into account as a thermometer of the situation in the region.

The European Central Bank has as one of its mandates to maintain inflation at a target of 2%, and when it is above this level, it uses monetary policy tools to direct it to this percentage. These tools influence both the amount and cost of loans that individuals and businesses can obtain. We use these tools to influence financing conditions and the level of economic activity in the euro area, which in turn affects inflation.

How does the inflation data impact the Euro?

If the CPI meets market expectations, the Euro could experience a slight rise or remain in a range similar to the current one, since the increase would be included in the price. In this case, EUR/USD could test the resistance located at 1.0839, the October 25 top. A greater than expected increase in inflation could boost the single currency a little more. In that case, the Euro could approach last week’s high around 1.0870.

On the contrary, a moderation in inflation compared to the previous month could weaken the Euro, causing a fall towards 1.0761, the lowest level in October and the last four months. A notable drop in the Spanish CPI and other Eurozone countries could lead the Euro downwards given the possibility of further interest rate cuts by the ECB.