Spain’s July Underlying Inflation Accelerates as Slump Persists

Spain’s underlying inflation accelerated for a second month in July, even as the economy slumped further into a recession that has pushed the unemployment rate to almost 25 percent.

Core consumer inflation, which excludes energy and fresh food, accelerated to 1.4 percent from 1.3 percent in June, the National Statistics Institute in Madrid said today. Prices fell 0.7 percent from June. Economists forecast an annual gain of 1.3 percent, the median of four estimates in a Bloomberg News survey showed.

Spain’s recession deepened in the second quarter as the sovereign-debt crisis worsened, pushing the unemployment rate to 24.8 percent in June. Adding to pressure on consumers, Prime Minister Mariano Rajoy is implementing more than 100 billion euros ($124 billion) of budget cuts, including an increase in value-added tax.

Amid weak demand, some retailers may absorb the sales-tax increase rather than passing it on to customers, Deputy Economy Minister Fernando Jimenez Latorre said on July 13. Inditex SA (ITX), the owner of fashion brand Zara, won’t raise prices to reflect the increase in the main rate to 21 percent from 18 percent, the Arteixo, Spain-based company has said.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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

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