INFLATION SHOULD FALL TO AROUND THREE PER CENT

By Humphrey Carter

THE Balearic rate of inflation is still riding at 3.5 per cent after prices rose by 0.5 per cent last month, slightly lower than the 0.7 per cent national average. onsumer price index figures released yesterday indicate that the biggest price increase was in the clothing and footwear sector, prices rose by 1.2 per cent. ut while Spanish inflation eased a fraction in March, it was still far above the euro zone average but economists said they expected a dramatic improvement in April. he National Statistics Institute said the consumer price index (CPI) climbed 0.7 percent at a national level in March to put the year-on-year rate at 3.7 percent, again slightly higher than the Balearic rate of inflation. Economists had been expecting a figure closer to 3.5 percent. The annual rate, which was bolstered by high energy costs and rising clothing prices, compared with 3.8 percent in February and with an estimated euro zone March average of 2.4 percent. Economists said the rate should come down sharply this month and the government was still on track to meet its aim of lowering inflation to around three percent by May or June. “The month of April will be the key,” said Israel Munoz, economist with Caja Madrid. “In April we expect to see a marked fall in energy prices because they rose very sharply in April last year.” Last April's rise in tobacco prices and the inflationary impact of widespread price rounding up when the euro replaced the peseta would not occur again this year, Munoz noted. ”Inflation of three percent in early summer is within reach,” another economist said. “Perhaps it won't be exactly three but definitely 3.1 or 3.2 percent.” Economy Secretary Luis de Guindos said he expected inflation to come down to around three percent at the end of May. Three percent inflation would be around one percent above the euro zone average in coming months economists said, adding that one percent was a reasonable gap given Spain's current above–average economic growth rate of two percent. “We expect at the end of the month of May to have an inflation rate of around three percent,” Guindos told reporters, adding that he saw the March data as positive because there had been an overall fall. In March, the sector with most impact on the monthly rise was clothing. Prices here increased by 2.9 percent month on month as winter sales ended and spring fashions reached shops. Fuels and lubricant prices rose 1.8 percent in the month, and those two categories together accounted for almost half the monthly rise in the index.
Core inflation, which strips out fresh food and energy prices, rose 0.6 percent month-on-month to a year-on-year rate of 3.2 percent.

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