Spanish Inflation Trending Positively

September 28th, 2009

Spanish consumer prices are seen falling at the same rate in September as in August on an annual basis, though analysts see inflation rates turning more positive by the end of the year.

A Reuters survey of 11 analysts produced a median forecast of EU-harmonised inflation of -0.8 percent in September, unchanged from August.

The government will release its flash inflation estimate on Sept. 29.

‘Spain is heading toward positive figures, but not until the end of the fourth quarter,’ said economist at RBS Nick Matthews.

The unwinding of base effects from a sharp rise in oil and food prices in July 2008 will lift inflation from record lows last July.

‘The back up in inflation rates is essentially a base-effect-led phenomenon at this stage. Base effects on the energy-based components … switched direction in August and the process is to continue out to year-end,’ economist at 4Cast Jose Garcia Zarate wrote in an investor’s note.

The government forecasts end-of-year inflation of 1 percent.

Core inflation — which strips out the more volatile elements of food and energy — may create a drag on headline prices in Spain after falling to 0.4 percent in August from 2 percent in January.

‘Falling core inflation will delay the trend toward positive prices in Spain when compared to the rest the euro area,’ Matthews said.

Core prices in Spain have dropped due to low consumer spending, aggressive sales campaigns by struggling retailers and slow inventory replacement by recession-struck companies.

The flash data does not include a break down, which will be reported with the final headline figure Oct. 14.

Euro zone inflation, due Sept. 30, is expected to remain unchanged at -0.2 percent in September and pick up in the final months of the year.

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