Spanish inflation reached its highest level in over a year, reinforcing expectations that the European Central Bank may keep interest rates steady next month.

Consumer prices increased 3% year-on-year in September, up from 2.7% in August and matching economists’ forecasts, according to Monday’s data.

Meanwhile, a measure of underlying inflationary pressures eased to 2.3%, contrary to expectations of a rise.

Analysts expect a slowdown later in the year, so the data are unlikely to alarm the ECB. The figures mainly reflect a smaller decline in fuel and electricity costs compared with September 2024.

Spain, the eurozone’s strongest major economy, reported 0.8% growth in Q2, Bloomberg reports.

Spain’s report is the first this month from the region’s largest economies. Italy, France, and Germany are set to release their readings on Tuesday, followed by the euro area as a whole on Wednesday.

Economists expect inflation in the eurozone to rise to 2.3%, but policymakers remain confident that price increases will hover near their 2% target in the near term.

Most officials do not anticipate the need for additional rate cuts after eight reductions over the past year.

“We need to be very agile and ready to move in any direction on monetary policy. Disinflation has been a success. The situation was complex two or three years ago. The current interest rates at 2% seem reasonable to us,” said Spanish central bank chief Jose Luis Escriva earlier this month.

The Bank of Spain forecasts inflation at 2.5% this year, down from 2.9% in 2024, and expects it to fall below the ECB’s target next year at 1.7%.

Since 2021, Spain has outperformed Europe’s other major economies, supported by tourism, low energy costs, and strong household spending. GDP is forecast to grow 2.6% this year, more than twice the eurozone’s projected 1.2% expansion.

This strong performance comes despite political instability, which has hindered the government’s ability to pass major legislation through a divided parliament. Prime Minister Pedro Sanchez has yet to approve a budget for 2025.