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Spain national inflation ticks lower in July

Source: Reuters - Fri 12th Aug 2011

Spanish consumer inflation fell to its lowest since December in July, hit by weak domestic demand and the fading of impact from a value-added tax hike a year earlier.

High energy prices still drove national consumer prices 3.1% up year-on-year, in line with the flash reading and analysts' forecasts, but that was down from 3.2% a month earlier, National Statistics Institute data showed.

Consumer prices rose 3.0% year-on-year in July on an EU-harmonised basis, equal to that recorded in June.

"We're now in a comparable period after the VAT hike, so this effect has been taken out and is a reason we can expect lower inflation over the next few months," economist at M&G Valores Nicolas Lopez said.

Spain's Socialists increased VAT to 18% from 16% in July last year as part of saving measures to assure nervous investors it had control of the national finances.

Despite an economy struggling with low growth, high unemployment and budget cutbacks, Spanish consumer prices have tended to be more volatile and above the euro zone average due to high imports of energy such as crude and natural gas.

The euro zone is expected to report inflation of 2.5% year on year in July on Aug 17.

Core inflation, which strips out volatile food and energy prices, was 1.6%, down from 1.7% in June.

"The core inflation was a surprise for us as we were expecting a increase due to higher tobacco prices. That factor has been offset by drop in clothing and footwear prices, which could be a sign of weak consumer spending," economist at Cortal Consors Estefania Ponte said.

Spain's economy has been in recession or stagnant for around three years after the global financial crisis cut off consumer lending, bursting a decade-long property bubble and paralysing domestic demand.

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