SPANISH inflation edged up in July, reversing direction after a sharp fall in the first half of the year, but the government said the rate should drop again in the autumn. July's 2.8 year–on–year rise in the consumer price index (CPI) reported yesterday compares with May and June rates of 2.7 percent. Using the European Union harmonised calculation the July rate was 2.9 percent –– a percentage point above the estimated euro zone average. Until now officials had said May and June were likely to be the best inflation months of the year, but Economy Secretary Luis de Guindos said inflation could fall as low as 2.5 percent in the next few months, helped by the comparison with high energy price rises in the second half of last year. “Energy and fresh food prices should behave favourably in the next few months,” he said. “The tendency toward consolidation this autumn should result in a rate of around 2.5 percent.” A 10 percent drop in clothing prices between June and July as the summer sales kicked in meant CPI fell 0.6 percent in the month. But in year–on–year terms clothing and footwear rose 3.9 percent. Other factors that swelled the annual rate were hotels, cafes and restaurants, whose prices rose 4.2 percent year–on–year despite tourism industry complaints that hotels had to slash prices in July to fill rooms. Month–on–month hotel prices rose 0.9 percent “It's clear that retailers' discounts offset higher prices in tourism,” Juan Jose Fernandez, economist a broker Ahorro Corporacion Financiera, said of the monthly figures. “In September that effect will disappear and tourism is likely to remain strong, which means it's going to be difficult for inflation to fall further.” Education also rose five percent year–on–year while food and drink increased 3.6 percent. Telecoms prices fell 2.5 percent.
Spain's four percent inflation of late 2002 now looks safely in the past and underlying inflation, which strips out volatile fresh food and energy prices, was 2.9 percent in both June and July –– its lowest level since November 2000, Guindos said. Like Fernandez, other economists are less optimistic than Guindos about the next few months. “Among the risks are rising tourism and fuel prices and the impact of adverse weather conditions,” economists at the Spanish Chambers of Commerce said in a note. “That could mean June's 2.7 percent rate marks the bottom of the downward trend in prices this year and they will be rising by around three percent at the end of the year,” they added. The heat wave that has scorched Europe for the last three weeks has pushed up electricity prices, as air conditioning works harder, and has driven up the price of poultry. Chickens are particularly sensitive to high temperatures. Poultry prices rose almost seven percent month–on–month in July and 9.1 percent compared with a year earlier.

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