Economic comment

Rising fuel prices pushed inflation up to 3% y/y  in March. A slight decline is likely in April, but the size of this move will depend on the behaviour of commodity prices in the coming weeks. Given developments in the Middle East, we currently assess that even in a scenario of a relatively rapid de-escalation of the conflict, the return of commodity prices to lower levels will be gradual. As a result, the inflation path for the coming months is shifting upwards, which will most likely rule out any interest rate cuts this year.

In February, retail sales at constant prices increased by 5.0% y/y, marking an acceleration from 4.4% y/y in January. The market had expected a reading of 6.1% y/y, while our forecast stood at 4.0% y/y. Sales of durable goods rebounded to 4.8% y/y after a weak January reading of 2.4% y/y. Sales of other goods rose by 5.0% y/y, compared with 4.8% y/y in January. If the conflict in the Middle East de-escalates relatively quickly, average real retail sales growth this year could reach around 4%, in our view.
In 4Q25, revenues of large and medium-sized companies increased by 3.0% y/y, while costs rose by 2.5% y/y. The four quarter average margin edged slightly higher (to 4.6% from 4.5% in 3Q). Investment by large and medium-sized companies in 4Q25 showed a clear acceleration to 8.8% y/y from 2.9% y/y in 3Q in real terms. Sectors more dependent on EU funding saw investment growth accelerate to 16.2% y/y from 14.2% y/y, while in the remaining sectors it improved to +6.3% y/y from -2.6% y/y.

February data were mixed. Industrial output rose by 1.5% y/y following a decline and slightly outperforming market expectations, while seasonally adjusted output increased by 0.6% m/m. Growth was driven by mining (19.6% y/y) and energy (13.5% y/y), whereas manufacturing was almost flat (0.2% y/y). At the same time, construction activity disappointed sharply, with the decline deepening to -13.7% y/y. The labour market remained relatively stable: wages in the enterprise sector increased by 6.1% y/y, below expectations, while employment continued to fall at -0.8% y/y. PPI inflation rose to -2.3% y/y from -2.6% y/y. However, rising global energy commodity prices suggest the index could shift quickly towards the -1% to 0% y/y range in the coming months. Overall, the data do not appear to generate price pressures requiring a response from the MPC, instead allowing time to assess the implications of the Middle East conflict within the wait-and-see approach signalled in recent comments by Council members.