Spain Sees Widest Inflation Gap With Germany in Euro History

Inflation in Germany, the guardian of price stability in the euro region, is outstripping that of Spain by the widest margin since the creation of the single currency.

Spanish consumer prices rose 0.5 percent from a year ago in September compared with a 1.6 percent increase in Germany, the bloc’s largest economy, according to the EU-harmonized price gauge. The 1.1 percentage-point difference exceeded the 1 point spread that opened between the indexes in June 2009, during the first wave of the global financial crisis.

Under pressure from the European Union, Prime Minister Mariano Rajoy has introduced the deepest austerity measures in Spain’s democratic history since coming to power in 2011, and brought in measures to help lower wages in a bid to balance its current account and narrow the budget deficit. Slower inflation in Spain may help correct the imbalances that strained the currency union, forcing the European Central Bank to intervene with its July 2012 pledge to backstop governments.

The euro region’s fourth-largest economy has contracted for eight straight quarters.

“Spain is now the good student after years of letting inflation loose,” said Ludovic Subran, chief economist at Euler Hermes, a Paris-based credit insurer. “The question is whether Spain’s adjustment will continue long enough to get it into the Franco-German league.”

The EU measure of inflation in Spain last year jumped to 3.5 percent in September from 2.7 percent in August after Rajoy raised the main rate of sales tax by 3 percentage points to 21 percent. Retail sales fell 4.2 percent from a year ago in August, continuing the pattern of annual declines each month since June 2010, INE said today in a separate release.

Before it's here, it's on the Bloomberg Terminal.