Spain Core Inflation Accelerates Before Decision on Pensions

A sales tax increase in Spain stoked a rise in core inflation in September, complicating efforts to plug the euro area’s third-biggest budget deficit.

The underlying inflation rate, which excludes energy and fresh food prices, rose for the first time in three months, increasing to 2.1 percent from 1.4 percent in August, the National Statistics Institute in Madrid said today. That compares with a 1.7 percent median forecast of five estimates in a Bloomberg survey. Prices rose 0.9 percent from August.

A three percentage point increase in value-added tax came into effect Sept. 1, adding pressure on indebted households suffering from the highest unemployment rate in the European Union. The country is the most difficult market in Europe for Volkswagen AG’s Spain-based Seat brand, Paul Sevin, vice president for sales and marketing said last month.

Headline inflation, based on European Union calculations, matched an initial estimate of 3.5 percent on Sept. 28. That was the most in 17 months and compared with a rate of 2.7 percent in August.

Deputy Economy Minister Fernando Jimenez Latorre last week said he expects consumer prices to slow in coming months as energy will have a smaller impact. The government is waiting for November data to take a decision on pension payments after increasing them by 1 percent in January.

Under Spanish law, if annual inflation in November exceeds that rate, the government must make up the difference, a move that could lead the nation to miss its budget goals, the Bank of Spain said last week.

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