Spanish Underlying Inflation Rate Declines Amid Recession

Spain’s core inflation rate fell in December as price pressures ease in an economy confronting a second straight year of contraction.

Annual core inflation, which excludes energy and fresh food prices, fell to 2.1 percent from 2.3 percent in November, the National Statistics Institute in Madrid said today. That compares with an 2.3 percent median forecast of five estimates in a Bloomberg survey. Underlying prices were unchanged from the previous month.

The recession in the euro region’s fourth-biggest economy is deepening as Prime Minister Mariano Rajoy struggles to tackle a budget deficit that matches that of Greece as the euro-area’s second biggest after Ireland. The European Central Bank last week left its benchmark interest rate unchanged as it sees flat growth in the region in 2013.

Spain’s headline inflation rate, based on EU calculations, was 3 percent, matching an estimate published on Jan. 2. Tax increases are fueling price increases even as a 26.6 percent jobless rate undermines demand. Retail sales fell 7.8 percent in November, after 9.7 percent in October.

Stripping out their impact, inflation was 0.9 percent in December, according to the Spanish statistics institute, and 0.2 percent if fresh food and energy were also excluded, according to the Spanish measure.