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Sharp rise in CPI in September
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Energy prices push CPI up to 3.7% in September.
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The consumer price index (CPI) showed a notable increase in September, well above the same month in 2004, which meant an increase in year-to-year inflation of four decimals putting it at 3.7%, the highest figure since the beginning of 2003. It was mainly energy, but also fresh foods, that muddied a picture marked by relative containment of core inflation, which excludes the more volatile elements of the index (energy and fresh foods).
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Core inflation fails to compensate for rise in prices of industrial goods and downward resistance in services.
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Core inflation, which rose by one decimal to stand at 2.5%, benefited from the stability in prices of services and processed foods, which continued to grow at the same rate as the month before, in the latter case in spite of the increase in indirect taxes on alcohol and tobacco. Nevertheless, this stability is not a specially hopeful sign to the extent that prices of services are continuing to grow at very high rates (3.7% year-to-year) due to increases in prices in certain controlled markets and public services (sanitation, transport, etc.) and the low level of competition in other sectors (personal and household services) where the fragmentation of the market makes it fairly easy to pass on cost increases, especially wage costs.
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Following several months of containment, the discordant note comes in prices of non-energy industrial goods, especially clothing, footwear and home goods, which showed some increase in spite of holding at the very modest growth of 0.9% year-to-year. The return of families to normal life following the summer holiday period ended up with price increases higher than last year, probably because of maintenance of a good level of private consumption.
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The performance in fresh food prices was clearly negative as, to some extent, these came to reflect certain pressures in prices at origin. In any case, growth figures held at relatively low levels although higher than in the two previous months. The biggest imbalance, however, came from a continuation of the rise in prices of oil and its by-products. The increase in fuels thus stood at 19.8% year-to-year and had a decisive effect on the rise in the general index.
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Prospects for year-end CPI come close to 4%.
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The rise in inflation in September meant a slight change from the situation in recent months. The impact of the increase in fuels in the past four months had been eased by the slight moderation in core inflation. In September, this trend toward a gradual drop in the more volatile core of the CPI was cut short precisely because of an upturn in prices of industrial goods, in keeping both with pressures seen in prices at origin, domestic and import, and with the strength of consumption aided by very easy monetary conditions. Altogether, forecasts for the year-end now stand very close to a year-to-year increase of 4%, a notable deviation from the official objective of 2%.
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In September, the upward trend in prices in Spain was somewhat higher than in the European Union as a whole, if we follow the harmonized consumer price index. In fact, the differential rose to 1.2 percentage points because of the heavier impact of prices for transport and education. The rise was not greater because of the relative containment of prices for alcoholic beverages and tobacco in Spain in spite of tax increases.
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Prices at origin show sustained increases
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Intermediate goods, food and energy push industrial prices to annual highs.
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Industrial prices heightened their upward trend in September with the continuation of certain increases in prices of food products and further pressure from energy prices and other intermediate goods. As a result, year-to-year growth of industrial prices reached an annual high to stand at 5.4%. Other components showed more stability and a more moderate performance.
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Inflation differential with euro area increases slightly.
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Import prices also continued to be affected by oil prices and cumulative year-to-year growth went up to stand at an average of 4.9% for the first seven months of the year, nearly five points more than in the same period in 2004. This boost did not come entirely from energy but was also fostered by increases in other industrial intermediate goods. The performance in consumer goods was less troubling although the average increase in prices (1.2%) was in contrast to the decrease shown in 2004.
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Situation worsens in import and farm prices.
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Farm prices showed an unfavourable performance in July although in year-to-year terms they continued to present a decrease. The worsening of the situation likely will continue until year-end as it will be difficult to improve on results seen in the second half of 2004. In any case, the average increase in farm prices as of July held at a modest 2.3%, a figure somewhat more favourable than that for the same period last year.
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