Spanish Underlying Inflation Slows as Economy Contracts

Spain’s underlying inflation slowed in February as the economy suffered its second recession in as many years and the government tried to rein in the euro area’s fourth-largest budget deficit.

Core consumer prices, which exclude energy and fresh food, rose 1.2 percent from a year earlier, compared with an increase of 1.3 percent in January, the National Statistics Institute in Madrid said today. Headline inflation, based on European Union calculations, was 1.9 percent, matching an initial estimate on Feb. 29.

Spain’s People’s Party government is set to announce more budget cuts on March 30 after a 15-billion euro ($19.8 billion) package in December, even as it forecasts the economy will shrink this year. Retail sales fell 6 percent in January from a year ago, the statistics institute said on March 9.

Consumers may remain reluctant to buy non-essential durable goods throughout 2012 and most of 2013, Raj Badiani, an economist at Global Insight Inc. (2172) in London, wrote in a note on March 9. He predicted consumer spending will drop by 2.2 percent this year and 0.6 percent next.

The government forecast household spending will decline 1.4 percent in 2012, with export growth weakening, it said on March 2.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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