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CPI moving down
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CPI down 4 decimals to 4.5% in September...
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The downturn in inflation of consumer prices that began in August was confirmed in September. This was after having reached the highest level in the last 15 years in July. The annual change rate in the consumer price index (CPI) thus went to 4.5%, some 4 decimals less than in the month before. The downward trend in inflation was largely due to the drop in oil and other commodity prices which had reached all-time highs at the beginning of summer. In any case, it is worth noting that in September inflation in the more stable core of prices (so-called underlying inflation) was down one decimal to 3.4% following four months of increases.
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...largely thanks to drop in fuel prices...
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The greater part of the decrease in the inflation rate in September may be attributed to the reduction in year-on-year inflation in fuels and lubricants which went down from 20.0% in August to 15.7% in September as a result of the big drop in crude oil prices. Another volatile component of inflation, fresh foods, also contributed slightly to the easing of inflation due to the drop in year-on-year inflation in poultry that went down 1.8 points to 3.4%.
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...and some basic foods.
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The one-decimal drop in underlying inflation in September was largely due to milk. Annual inflation in this product continued to ease and went to 12.3% in September, less than half of the 31.7% figure reported in December 2007, once supply became more normal. Bread, another basic processed food, also helped ease inflation, reflecting the drop in wheat prices in world markets in recent months.
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Services continue to show inflationary pressures.
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Industrial goods, excluding energy products, maintained the change rate in prices at 0.5% thanks to strong competition in international markets. The containment of prices is also a result of weak demand. Prices of motorcycles and bicycles were down by 3.0% over the last 12 months.
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Nevertheless, services (being more sheltered from foreign competition) continue to show inflationary pressures. The year-on-year change rate rose by one decimal to stand at 4.1%. Over the past year ending in September child education rose by 5.8% while medical consultations were up 5.0%.
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The price index harmonized with the European Union reported a year-on-year increase of 4.6% in September, 4 decimals less than the month before. Given that inflation in the Euro Area was down less, the differential was cut by two decimals to 0.9 percentage points. The narrowing of the gap was partly due to the higher proportion of fuels in the Spanish shopping basket and that taxes on these products carry less weight, so that the drop in fuel prices has a bigger impact on national consumer price index.
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Inflation could end year below 3%.
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The present situation with a sharp drop in demand and the low level reached in oil prices promise a continuation of the downward trend in inflation in coming months. As a result, annual inflation could stand below 3% at year-end if there is no halt in the downward course of commodity prices.
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Wholesale prices now passing through recent drop in commodity prices
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The drop in commodity prices in recent months, especially in oil since July, continue to be passed through to wholesale prices in which inflation had reached the highest levels in recent years. Behind this drop lie a number of supply and demand factors. One of the biggest factors has been the slowdown in the real economy that is showing the effects of the world financial crisis in recent times.
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Growth of producer prices slowing down but still holding at 8.1% at annual rate.
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The annual inflation rate for producer prices continued to drop in September, going to 8.1%, some 1.1 points below the month before and 2.2 points less than the highest figure since 1984 recorded in July. All components contributed to the downward slide, energy being the most notable with an annual change rate that went down by 3.7 points, although it still stood at the high level of 21.6%, with the possibility of further decreases.
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Looking at the various branches, the most inflationary over the past year were energy and metallurgy, which reflect the earlier price increases in commodities. On the other hand, the manufacture of office machines and computer equipment showed an annual drop of 1.8% in price levels due to sharp competition in world markets and gains in productivity. At the same time, motor vehicle manufacture showed little annual inflation at 1.0%.
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With regard to import prices, the year-on-year inflation rate also began to ease in August after having recorded a high level of 10.6% in July. The downward drive came in energy for which the annual change rate dropped by 12 points to 41.4%. On the other hand, annual inflation on consumer goods, capital goods and intermediate goods rose slightly, under pressure from a euro dropping in value.
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Livestock products prices moderating but some agricultural products rise.
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With regard to prices obtained by farmers, these continued to be erratic in July with a rise of annual inflation taking it to 14.1%, although this rate was lower than the annual high in May. The rise was due to farm products, which rose by 20.9% in the past 12 months, given that inflation on market livestock was down to 2.0% while livestock products were also lower with a drop to 10.0%.
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