Higher oil prices set rising inflation in Spain

26th May 2008, Comments 0 comments

Cost of energy during the first quarter of 2008 is up 68 percent compared with a year ago.

26 May 2008

MADRID - Rocketing crude oil prices, which forced Spain's energy bill to double in March to EUR 4.955 billion, is one of the many headaches facing the Socialist government as it attempts to cope with the economic downturn.

The cost of energy during the first quarter of the year stood at EUR 12.583 billion, up 68 percent compared with EUR 7.476 billion a year ago.

Even though soaring global crude prices are seen to be having a negative impact on the economy, the big question mark is how high oil prices can still go.

"[The price of] oil is in an ever-rising spiral and we do not know when it will end," admitted Economy Minister Pedro Solbes last week.

Spain is one of the most vulnerable developed nations to high crude prices because it imports the lion's share of the energy it consumes.

Since the beginning of the year, the Government has stated that the consumer price index (IPC) will start to gradually retreat after rising to 4.5 percent in March. Solbes said in that month that he saw inflation receding by the end of the year to 3 percent.

But higher global crude prices in May, which had hit the USD 130-per-barrel mark, could dash Solbes' hopes of lower inflation by the end of the year. Spanish think-tank Instituto Flores de Lemus said Thursday that high oil prices would force inflation to rise by over 4.5 percent in the next few months and peak in August at 4.9 percent.

"What countries like the United States and Spain need now is the price of crude oil to fall to USD 80 per barrel," said José Carlos Díez, chief economist at Intermoney. "It would be the best monetary or fiscal policy [to contain inflation]."

[El Pais / Expatica]

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