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Spanish Inflation Remains Flat

James Boston
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Spain has not managed to emulate Germany this morning in producing figures indicating accelerating price growth. The Spanish National Institute of Statistics has released June inflation figures and these are generally showing little to no price inflation. The Consumer Price Index (CPI) for the month has produced a year on year reading of 0.1%, this is in line with expectations but short of the 0.2% expansion recorder in May. On a month on month basis the reading is showing at a flat 0%, this is the same as the May reading and markets were not anticipating any change here.

When measured using the methodology preferred by the European Central Bank (ECB) the situation does not in any way improve. The Harmonized Index of Consumer Prices (HICP) is showing a month on month fall in prices of -0.1%, this is precisely as anticipated and lower than last month’s flat reading of 0.0%. On a year on year basis the HICP is reading at 0.0% price growth, markets had predicted this and it clearly represents a fall from the 0.2% growth experienced in May.

Despite no evidence of activity in price growth The International Monetary Fund (IMF) yesterday doubled the targeted GDP expansion for the Spanish economy. The predictions of 1.2% growth this year and 1.6% in 2015 however came with a stern warning that the planned reform of Spain’s taxation system must be pervasive. Facing into an election year, the Spanish government has announced some wide ranging cuts to both income and corporate taxes, this is not just a vote getting exercise, it is also likely to provide some much needed fiscal stimulus to the economy. The IMF however has stressed that for this to be successful, Spain must seek to replace this lost revenue with other forms of taxation, namely an increase in indirect taxes such as environmental levies.

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