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MADRID (Reuters) - Spanish consumer inflation eased sharply in March as fuel and power prices fell, data showed on Thursday, feeding into a debate about the euro zone's monetary policy outlook before equivalent data from its dominant economy Germany.
European Union-harmonised inflation was 2.1 percent year-on-year, the flash data from the National Statistics Institute (INE) showed, compared with a Reuters poll of 2.7 percent and with a reading of 3.0 percent in February.
INE data also showed Spain's national consumer price index rose by 2.3 percent in March, down from 3.0 percent in February.
On a month-on-month basis, Spanish national consumer prices were flat, the lowest monthly variation since March 1998.
"This is much lower than we'd expected and is principally due to the effect of oil prices," said Estefania Ponte, analyst at BNP Paribas Personal Investors in Madrid.
Spanish inflation was seen ending the year at between 2-2.5 percent, Ponte said, within touching distance of the European Central Bank's inflation target of near to, but below, 2 percent.
The Bank of Spain said on Thursday it expected consumer price rises seen at the beginning of the year to ease through the rest of 2017 and to be below 1.5 percent in 2018.
Thursday's sharp fall contributed to a drop in German and French government bond yields as traders expected similar softer figures across the euro zone, reducing pressure on the ECB to rein back its stimulus measures.
In Germany, regional inflation data pointed to a similar fall from February in the national reading, which is due later on Thursday.
The ECB has said it needed to see if gains in inflation rises at the start of the year were sustainable in the medium term before considering changing policy which pumps billions of euros into the euro zone economy through asset purchases.
Reporting by Paul Day; editing by John Stonestreet