Spain’s underlying consumer prices were unchanged in June as the economy slumped further into its second recession since 2009.
Core consumer prices, which exclude energy and fresh food, were unchanged from the prior month, when they rose 0.2 percent, the National Statistics Institute in Madrid said today. From a year ago, core inflation was 1.3 percent. Prices were forecast to fall 0.1 percent in the month and increase 1.1 percent from a year earlier, according to a Bloomberg survey of four economists.
Spain’s recession probably intensified in the second quarter as the sovereign debt crisis worsened, the Bank of Spain estimates, and Prime Minister Mariano Rajoy said this week the slump will continue next year. As part of his efforts to fight the crisis, he announced 65 billion euros ($79 billion) of additional budget cuts on July 11, including an increase in value-added tax.
Some retailers may absorb the increase in sales tax rather than passing it on to consumers, who are already suffering from an unemployment rate of 25 percent and income tax hikes. Inditex SA (ITX), the owner of fashion brand Zara, won’t raise prices to reflect the increase in the main rate to 21 percent from 18 percent, the Arteixo, Spain-based company said on June 11.
Spanish inflation, which was higher than the euro-region average for a decade, is now below that of other European economies. Spain’s headline inflation rate was 1.8 percent in June, based on European Union calculations, compared with 2.4 percent in the 17-nation euro area.
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