Spain’s inflation almost halved in a month to 3.1 per cent in March as energy costs dropped, in a possible early sign of a sharp fall in European headline inflation this year.

The year-on-year rise in Spanish consumer prices compared with the previous month’s rate of 6 per cent and was lower than the 4 per cent forecast by economists polled by Reuters.

The drop is likely to be reflected across Europe as lower energy prices feed through to consumer gas and electricity costs. German inflation figures are due later on Thursday and French numbers on Friday.

The slide in the headline figure is likely to bolster calls for the European Central Bank to stop raising borrowing costs when it next meets in May.

Europe’s Stoxx 600 index was up 0.8 per cent on the previous day’s close on Thursday morning, while Spain’s Ibex 35 was up 1.5 per cent.

Spain served as a leading indicator during the rise of inflationary pressures in Europe last year because its energy prices respond faster to wholesale market moves than other countries. The European price of gas was €43 a megawatt hour on Thursday, down from €175 six months ago.

However, March’s prices were still 1.1 per cent higher than the previous month. Core inflation, excluding energy and fresh food prices, dipped slightly to 7.5 per cent.

Even ahead of the Spanish figures, some members of the ECB’s governing council had called for it to adopt a more cautious approach after raising interest rates by half a percentage point this month.

The turmoil in the banking sector has also opened up the prospect of a potential credit crunch that could slam the brakes on both inflation and growth in the coming months. 

However, more hawkish council members argue the ECB needs to discount the sharp swings in energy prices and focus on underlying price pressures.

Isabel Schnabel, the most hawkish member of the ECB executive board, told an event in Washington late on Wednesday that core inflation had proved more sticky than expected and this “causes some headaches for central bankers”. 

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