Spanish Inflation Spells Pension Headache for Government
Spanish inflation eased in November thanks to a dip in energy prices but it remained far above the euro zone average, likely raising the cost of state pension rises for an already hard-pressed budget.
Prime Minister Mariano Rajoy has pledged to raise pensions by at least one percent for 2013 and has said he will decide whether to hike payments in line with consumer prices once final November inflation is published in mid-December.
Spain's current legislation states that retirement payments must increase at the same rate as inflation, but the measure has come under scrutiny as the country battles to reduce its budget deficit and quell concerns over its public finances longer-term.
The EU-harmonized consumer price data showed inflation of 3.0 percent year-on-year in November, lower than a consensus forecast and down from 3.5 percent in October.
National Statistics Institute data, key for the pension rise, showed Spain's national consumer price index, rose by 2.9 percent in November on an annual basis, down from 3.5 percent in October.
Given that the government has already budgeted an inflation of 1 percent, a final reading of 2.9 percent would imply an additional cost of 3.8 billion euros for state coffers.
The final November reading is due on December 13.
Continuing sharp rises in prices in Spain, due largely to the impact of taxation and higher fuel prices, also hammer consumers already dealing with unemployment of 25 percent in an economy that is deep in recession.