Spanish inflation climbs to highest level in 12 years

16th January 2008, Comments 0 comments

Higher fuel, food costs push annual CPI rise to 4.2 percent.

16 January 2008

MADRID - Inflation in Spain ended 2007 at its highest level for 12 years as consumers paid the price for sharply higher oil and food costs.

According to the National Statistics Institute (INE), the consumer price index in December was up 0.4 percent from November, and accelerated on an annual basis to 4.2 percent from 4.1 percent. The government's official inflation target for the year was 2 percent.

With oil moving above a record USD 100 a barrel, fuel prices climbed 14.4 percent in December. The price of bread was up by the same amount on the back of higher demand from countries such as India and China and poor harvests for cereals. Supply shortages pushed the price of milk up by 31 percent.

Underlying inflation, which factors out volatile items such as fresh food and energy product prices, rose for the fifth month in a row to stand at 3.3 percent in December.

The Economy Ministry attributed the increase to external factors, such as higher commodity prices, and predicted inflation would start to slow from the spring.

While other European countries were also impacted by the same factors, Spain was particularly badly hit. Inflation in the euro zone in December was 3.1 percent, while Portugal yesterday said its harmonised index of consumer prices (HICP) slowed to 2.7 percent from 2.8 percent, while in Spain it rose to 4.3 percent.

While acknowledging the figures were disappointing, the secretary of state for the economy, David Vegara, sought to put the data in a different light. He pointed to the fact that average inflation last year came in at 2.8 percent, the lowest level since 1999. Vegara predicted there would be no further pick-up this year with the rate of inflation returning to levels of below 3 percent.

The difference in the increase in the HICP between Spain and the euro zone widened to 1.2 points. Vegara noted the average differential since Spain joined the single European currency area was 1.1 points, while the average in 2007 was 0.7 points. In the case of Portugal, the average rate fell in December to 0.3 points.

Some 5.5 million workers in Spain are covered by clauses in labour union collective agreements indexing wages to inflation. The difference between the actual rate of inflation in December and the government's target rate could cost companies as much as EUR 3 billion. The government will also have to compensate pensioners for a loss of purchasing power.

[Copyright EL PAÍS 2008]

Subject: Spanish news

0 Comments To This Article