Spain Core Inflation Falls to Eight-Month Low as Slump Lingers

Spain’s core inflation rate dropped in April to an eight-month low after the fourth-largest economy in the euro area contracted for a seventh quarter.

Core inflation, which excludes energy and fresh-food prices, was 1.9 percent last month, compared with 2.3 percent in March, the National Statistics Institute in Madrid said today. That’s less than the 2 percent median of four forecasts in a Bloomberg survey. Prices rose 0.8 percent from the previous month.

Spain’s headline inflation rate, based on European Union calculations, was 1.5 percent in line with a preliminary estimate on April 29.

The European Central Bank this month cut its benchmark interest rate to a record low of 0.5 percent after inflation in the 17-nation region slowed to the weakest level since 2010 and unemployment rose above 12 percent. Spanish inflation will average 1.5 percent this year and 0.8 percent in 2014, after 2.4 percent in 2012, according to European Commission forecasts.

Retail sales, adjusted for the number of working days, fell 8.9 percent in March from a year ago, INE said on April 29. Inditex SA (ITX), the world’s biggest clothing retailer, missed analysts’ profit estimates in the last quarter of its fiscal year as the toughest austerity measures in Spain’s democratic history undermined sales in its home market.

In power since December 2011, Prime Minister Mariano Rajoy has obtained the European Commission’s approval for more time to tackle the EU’s largest budget deficit. The International Monetary Fund supports his mid-term budget plan presented on April 26, increasing pressure on officials in Brussels and Berlin to back away from austerity-first policies.

Unemployment rose to a record 27.2 percent in the first quarter. Both the commission and the IMF forecast Spanish joblessness will peak this year as output contracts 1.5 percent before the economy returns to growth in 2014.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; Charles Penty in Madrid at cpenty@bloomberg.net

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

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