Spanish inflation now under 2% ECB goal, at 2-year low
SPANISH inflation has slowed to below the 2 per cent level targeted by the European Central Bank (ECB), a small victory for Frankfurt officials battling to tame cost increases across the wider euro region.
Consumer prices rose 1.6 per cent in June from a year earlier, down from 2.9 per cent the previous month, as increases in energy and food bills continued to ease, the country’s statistics agency indicated. That is the weakest pace of inflation in more than two years.
ECB officials will not take much reassurance from the data in the region’s fourth-biggest economy, despite the dramatic improvement. Policymakers remain perturbed at the underlying pace of price growth in the euro area, which is likely to have re-accelerated.
“The evolution of core inflation, of underlying inflation – that, I think is very relevant in the present circumstances,” ECB vice-president Luis de Guindos told Bloomberg Television on Wednesday (Jun 28). “Perhaps, you know, core inflation is going to be stickier than we believe.”
Spain’s own underlying measure, based on a different index and basket than the eurozone’s gauge, slowed to 5.9 per cent in June from 6.1 per cent.
Italian data on Wednesday showed a drastic improvement in the headline index too; though at 6.7 per cent, inflation there remains far above the ECB’s goal. France may also report a slowdown in price growth on Friday.
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Those data will lead up to the publication of numbers for the euro region as a whole. Economists anticipate headline rate of inflation fell to 5.6 per cent, while the underlying measure rose to 5.5 per cent.
A former Spanish finance minister, de Guindos said that another ECB rate increase in July is a “fait accompli”, while there is an open question on what to do at the subsequent meeting in September. That is the focus of debate among officials at present.
Money markets on Thursday maintained around 90 per cent odds on a quarter-point interest-rate increase by the ECB next month, and cemented wagers for a 4 per cent peak by year-end. The first 25 basis points of easing is expected by July next year.
Spanish Economy Minister Nadia Calvino said last week that Spain may not need more rate hikes, though she acknowledged that the ECB “is looking at Europe as a whole”.
Despite slowing price growth there, Prime Minister Pedro Sanchez, who is trailing in polls ahead of a Jul 23 snap general vote, on Tuesday extended an anti-inflation package of 3.8 billion euros (S$5.6 billion) in tax cuts and subsidies. BLOOMBERG
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