By Paul Day

SOARING energy costs sent Spanish producer prices rising to a 23-1/2 year high in July in what many analysts saw as a peak to producer inflation.
The annual rate of 10.2 percent was the highest since November 1984 and was driven by a 30.3 percent rise in energy prices, National Statistics Institute data showed yesterday.

Producer prices rose 1.4 percent month on month, up from a rate of 1.1 percent in June.

Oil prices have dropped dramatically since July and economists saw Spanish inflation easing in August, helped by lower consumer goods demand during a housing and credit crisis.

“July is very likely to be the peak for Spanish prices,” said Jose Garcia Zarate at the 4Cast consultancy. Spanish consumer price inflation reached a 13-year high of 5.3 percent in July but is thought to have eased to 5.2 percent in August, according to the median estimate in a Reuters survey of six analysts. Spain reports preliminary August EU harmonised consumer price inflation on Thursday. Yesterday's data showed Spanish consumer goods prices rose 0.1 percent month on month in July, down from a 0.2 percent rise in June, as households slashed spending.

“This is good news for inflation, but shows consumer weakness,” said Citigroup strategist Jose Luis Martinez.

Intermediate goods prices rose 1.1 percent, more than double the 0.5 percent rate in June, driven by higher energy costs.

Fortis Bank analyst Diego Fernandez saw limited risks higher energy prices would feed into other areas of the economy over the next year. “I see pretty limited second round effects given the scenario for economic weakness,” said Fernandez.


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