2010.08.3006:20:00UTC+00Spain HICP Inflation Eases To 1.8%

Spain's harmonized index of consumer prices increased for the tenth straight month in August, albeit at a slower pace than in the previous month, a flash estimate from the Madrid-based statistical office INE showed on Monday.

The index climbed 1.8% year-on-year, slowing from the 1.9% increase in the previous month. Economists had expected harmonized consumer prices to rise 1.9%.

The slowing in the inflation rate was mainly due to a decrease in fuel prices, the statistical office said. Detailed breakdown of the data is due later next month.

Analysts expect Spain's inflation rate to remain in the positive territory in the coming months, helped by the base effect of falling energy prices a year ago. However, the inflation rate is forecast to ease further as those base effects disappear.

Spain's economy expanded 0.2% in the three months through June, as it continues to battle high unemployment. The Iberian nation has the largest unemploment rate in the eurozone at 20.1%, with nearly half of under 25s without a job.

The collapse of the property sector sparked Spain's recession, with the services sector also taking a hit. The government unveiled a number of stimulus measures to support the stricken economy and in the process racked up a massive budget deficit.

Spain's budget deficit - at 11.3% of gross domestic product - is almost four times over what European Union rules allow. Prime Minister Jose Luis Zapatero has announced spending cut plans, including a civil service hiring service and a raise in the retirement age in a bid to consolidate public finances - a move which has sparked public unrest in the country.

Many analysts expect the government's harsh austerity regime to drag the economy into another recession in the second half of the year, albeit a milder one than the 18-month recession it exited in the first quarter.

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