Spain Core Inflation Accelerates Amid Lingering Recession

Spain’s core inflation rose from an eight-month low in May, hindering Premier Mariano Rajoy’s efforts to end a recession in the fourth-largest economy in the euro region as budget cuts and a record jobless rate sap demand.

Core inflation, which excludes energy and fresh-food prices, was 2 percent last month, compared with 1.9 percent in April, the National Statistics Institute in Madrid said today. That’s more than the median of four forecasts in a Bloomberg survey which was for an unchanged rate. Overall consumer prices rose 1.7 percent from the previous month.

Spain’s headline inflation rate, based on European Union calculations, was 1.8 percent in line with a preliminary estimate on May 30.

The European Central Bank has left its benchmark interest rate unchanged at a record low of 0.5 percent after the euro region’s gross domestic product contracted for a sixth quarter in the first three months of the year. Budget Minister Cristobal Montoro last month said he expects inflation to be closer to zero percent than one percent in a few months in Spain.

Chief operating officer Carlos Tavares of France’s second-largest carmaker Renault SA (RNO) expects the European car market to shrink 5 percent this year. Spanish new car registrations fell 5.8 percent from a year ago over the five first months of the year, according to Spain’s automobile organization Anfac while the country’s industrial output declined a 20th month in April.

European Union leaders meeting this month in Brussels will decide on the European Commission’s proposal to give Spain two more years, until 2016, to tackle the EU’s largest budget deficit. International Monetary Fund Managing Director Christine Lagarde this month urged less “brutal” fiscal consolidation in Spain.

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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