Fuel consumption pushes Spain’s inflation to 29-year high, threatens recovery

Reuters. File photo: High-voltage power line and an electric pylon depicted on the evening of September 29, 2021, outside Madrid, Spain. REUTERS / Susana Vera

By Inti Landauro and Belen Carreño

MADRID (Reuters) – Spanish inflation hit a 29-year high in October as national consumer prices rose 5.5% year-on-year, flash data from the National Institute of Statistics (INE) showed on Thursday, threatening economic recovery.

Inflation rose to 4.0% in September and has been at its fastest pace since September 1992, when the peseta weakened against the Deutschmark and the rate reached 5.8%.

Driving upwards is an increase in energy costs and, to a lesser extent, in package holidays and in the price of vehicle fuel and lubricants.

The rising price of electricity plays such a prominent role that the gap with core inflation, excluding energy and food, is the highest since the record began in 1986.

Inflation has risen across the euro zone in recent months, but slightly lower. The region’s consistent annual rate in September was 3.4%.

Spanish core inflation, 1.4% in October, is the index that worries most experts and the central bank in anticipation of a possible change in monetary policy.

Although the government argues that inflation is temporary, economists fear they could have a second-round impact on wages and reduce corporate competitiveness.

Falling unemployment, driven by a sharp rise in summer hospitality employment, could increase price pressures.

According to INE data released this week, industry prices reached their highest level since 1977 after jumping 23.6% year on year in September.

And, complicating the potential impact, Spain is poised to raise pensions in line with inflation and raise the minimum wage and public wages in 2022.

In response to rising energy prices, the Funkas thinktank on Wednesday cut its 2021 economic growth forecast from 6.3% to 5.1%.

INE data also shows that Spain’s EU-affiliated consumer price index rose 5.5% year-on-year in October, the highest reading since the series began in 1997. Analysts surveyed by Reuters had expected a 4.8% price increase.

Spain’s central bank expects relatively high inflation rates to continue in the coming months although the underlying factors are transient, Governor Pablo Hernandez de Cos said on Monday.

High energy costs may continue in the winter as cold weather increases demand and oil and gas storage levels are relatively low, he said.

Spain recently approved a package of measures to mitigate the impact of rising gas prices on consumers, but watered down the bill after fierce opposition from utilities.

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