Surge in oil prices pushes inflation to 13-year high

12th June 2008, Comments 0 comments

Economy minister warns consumers of more pain to come as consumer price index in May is up 0.7 percent from April.

12 June 2008

MADRID - Spanish inflation accelerated to its highest level in May in almost 13 years as oil prices continued to surge, while the government warned things were likely to get worse before they got better.

According to figures released Wednesday by the National Statistics Institute (INE), the consumer price index in May was up 0.7 percent from April, while the annual rate increased 0.4 points to 4.6 percent, the highest rate since July 1995.

Economy Minister Pedro Solbes said a further rise in inflation was expected during the summer before consumer prices started to slow in the final part of the year.

Solbes' department noted that oil prices, which hit new all-time highs this month, had risen 83.4 percent in the past 12 months and were up 12.5 percent since April.
The INE said the annual rate of change in fuel prices in May accelerated to 21.0 percent from 16.7 percent in April.

Spain's Chamber of Commerce said crude prices were likely to remain higher or pick up even further over the coming months, which "leaves little room for optimism about the trend in inflation".

The costs of services and processed foods also put upward pressure on inflation. As a result, the underlying rate of inflation - which factors out volatile fresh food and energy prices - accelerated to 3.3 percent in May from 3.1 percent the previous month.

An indefinite strike by road haulers to protest high fuel prices also augurs badly for inflation if the stoppage is a long one and causes supply shortages.

Persistent inflation could further damage consumer confidence and hurt spending in a rapidly slowing economy.

The secretary of state for the economy, David Vergara, insisted Wednesday it was wrong to use the "crisis" word to describe what was happening to the economy. He insisted the government's target of GDP growth for this year of 2.3 percent was realistic, but acknowledged there were risks on the downside to this figure with oil prices at around USD 135 a barrel.

The opposition Popular Party's congressional spokesman on the economy, Cristóbal Montoro, waxed elegiac about the situation. "The CPI is a hard blow for the wounded body of the Spanish economy," he said. "The economic crisis continues to spread."

[El Pais / Adrián Soto / Expatica]

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