The Spanish government announced a fresh batch of measures worth €10 billion ($10.6 billion) for 2023 to help ease naggingly high inflation stoked by the war in Ukraine.

The latest package, unveiled Tuesday in Madrid by Prime Minister Pedro Sanchez, includes a six-month extension of tax breaks on power and gas due to expire by the end of this year, new direct aid for around 4.2 million lower-income families worth €200 and tax reductions for basic foodstuffs.

The government also agreed to end a blanket discount at the fuel pump and target aid instead to the transport and farming sectors, extend a limit on rent increases of 2% until the end of next year and provide support worth €900 million for gas-intensive industrial companies.

Since last fall, Sanchez has promised measures worth €35 billion, or 2.5% of the country's total output, to try to contain inflation. The annual increase in consumer prices climbed to nearly 11% after Russia's invasion of Ukraine triggered an energy crisis across Europe.

While those measures, together with declining energy costs, have helped ease inflation by 4 percentage points since July, price gains will remain substantial in 2023 and 2024, according to the Bank of Spain.

To tackle food inflation, which remains at around 15%, Sanchez on Tuesday announced sales tax on staples such as bread, milk cheese, fruit and vegetables will be cut to zero from 4% and the levy on oils and pasta to 5% from 10%.

The blanket fuel discount of €0.20 per liter was the most expensive measure and ending it will save the government an estimated annual amount of around $6 billion.

Other new measures announced Tuesday include:

  • Freezing the maximum price for a bottle of butane gas.
  • Aid worth €300 million for farmers to compensate for rising fertilizer costs.
  • Discount of 30% on some public transport.
  • Six-month extension of the suspension of evictions for vulnerable households.

Alonso Soto report for Bloomberg News.

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