Spain: August Inflation Matters
September 15th, 2009
Spanish month-on-month consumer prices rose in August after a sharp drop in July though less than expected, while annual inflation moved off its record low a month earlier, official data showed on Friday.
Spain’s year-on-year inflation was a widely expected -0.8 percent in August, its sixth consecutive month of decline, while monthly inflation was +0.3 percent, slightly less than a Reuters forecast of +0.4 percent.
August’s data pointed to an easing in price drops as the base effects from a peak in global energy and food prices in July 2008 dissipated, and Spain’s Economy Minister Elena Salgado said the government expects positive figures by the end of the year.
‘We expect to end the year with a slightly positive rise in prices,’ Salgado said during a radio interview on Friday, reflecting forecasts by many economists.
Core inflation, which strips out the volatile elements of food and oil, rose 0.4 percent year-on-year in August, down from 0.6 percent a month earlier, amid price pressures from the sharp economic slowdown and fuelling concerns of deflation.
‘The key is what happens to core inflation, which has plunged over the past 6-12 months, and we think there’s a very good chance that trend will continue and indeed head into negative territory,’ said Capital Economics economist Ben May.
‘There certainly remains a risk Spain will see a more prolonged period of deflation, perhaps later on in 2010 or 2011 which could be much more long-lived and have more serious implications for growth prospects.’
Salgado agreed inflation next year could be below 1 percent, though the Spanish government has repeatedly rejected the suggestion that Spain could enter a period of prolonged negative inflation.
Story from Forbes
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