Spanish Inflation June 2008

Spanish inflation accelerated to the fastest pace on record in June as oil and food prices rose at very strong rates. According to the flash estimate consumer prices rose 5.1 percent from a year ago after increasing 4.7 percent in May, based on the European Union's calculation method, the National Statistics Institute (INE) said on Friday. That's Spain's fastest inflation since the harmonized methodology was introduced in 1997.



This is now most preoccupying, since it now makes an interest rate rise from the ECB all but inevitable (for a good view of the policy debate vis-a-vis the ECB see this extensive piece from Claus Vistesen on RGE Monitor). The problem is that this sort of inflation almost certainly can't last given the rate at which the Spanish real economy might be slowing, in which case we will get monetary tightening going straight into the recession, with a non negligible possibility of provoking outright price deflation as a consequence, so I really do hope the ECB think very seriously about some of the potential implications of what they may be about to do.