Spain announces $10.6bn package to ease inflation pain

Prime Minister Pedro Sanchez will send €200 to households to fight soaring cost of living

Spain's Prime Minister, Pedro Sanchez, at an end-of-year briefing after a Cabinet meeting, at La Moncloa Palace in Madrid. AFP

Spain on Tuesday announced €10 billion ($10.65 billion) worth of measures to ease the pain of inflation in the third major package this year, bringing total aid to €45 billion since early 2022.

Spanish Prime Minister Pedro Sanchez will sign off on the package, which includes a one-off bonus of €200 for about 4.2 million households with annual income of up to €27,000, and the extension of tax cuts for energy bills into the first half of next year.

The package follows similar announcements in March and June that included direct aid, tax cuts, soft loans and rental control.

The measures, coupled with an agreement negotiated with the EU to place a limit on gas prices for electricity production, have had some success.

Inflation for the past 12 months slowed to 6.7 per cent in November, the lowest rate in the 27-country EU bloc.

Slowing inflation has been aided by a sharp fall in electricity prices, which decreased by 22.4 per cent from a year earlier in November.

But food prices have continued to hit Spaniards' wallets, climbing 15 per cent during October and November from a year earlier.

The government said it would cut VAT on essential food such as bread, cheese, milk, fruit and vegetables and cereals to 0 per cent from 4 per cent.

Pasta and cooking oils will have the VAT slashed by half to 5 per cent, Mr Sanchez said.

He also announced 12-month extensions on subsidies for train travel for commuters and limits on rental increases.

But a rebate on the price of petrol for consumers except for the haulage sector will be discontinued.

Mr Sanchez said the aid provided so far had helped Spain to register strong economic growth this year, which he put at more than 5 per cent, above the government's earlier forecast of 4.4 per cent.