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Economy in Brief

Upturn in Spain's CPI Led by Energy, as Euro Falls
by Carol Stone May 14, 2004

CPI inflation in Spain picked up last month to a 2.7% year/year increase from just 2.1% in February. While 2.7% is not a "high" inflation rate for Spain, the steep upturn from February's pace is an unusual one-month move. As evident in the table below, half of it resulted from an abrupt turn in energy costs. Excluding energy, the increase in inflation was just 0.3%, and at 2.8%, this major subset of prices is rising more slowly than anytime since the middle of 2000, almost four years.

Energy prices have played an interesting role in Spanish inflation behavior in the last couple of years. As we described here exactly a month ago for other European countries, the strong Euro since early 2002 has offset rapidly rising dollar prices of energy when they are expressed in Euro terms. Seen in accompanying graph and table, for Spain, this meant that energy prices were flat across 2003, while they rose 6.9% in the US. The "energy products" sector of Spain's CPI actually declined year-on-year in several recent months, particularly this past January through March.

However, the euro has recently been declining, and by April, the monthly average was already down about 5% from a February peak. So now, with the higher dollar and lower euro, energy products are starting to get more expensive in Europe and Spain's experience is likely being repeated elsewhere on the Continent.

NSA, Yr/Yr % Changes Apr 2004 Mar 2004 Feb 2004
2003 2002 2001
Spain: Total CPI 2.7 2.1 2.2 2.6 4.5 2.7
CPI ex Energy Products 2.8 2.5 2.7 2.9 4.3 4.0
Energy Products 1.5 -2.5 -2.6 0.0 6.3 -10.0
US: CPI: Energy 5.6 0.4 3.8 6.9 10.7 -13.0
Euro/US $: Level 1.1989 1.2261 1.2640 1.2298* 1.0194* 0.8912*
  Yr/Yr % Change 10.4 13.6 17.2 20.6 14.4 -0.8
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