MADRID: For more than three years, Spain’s inflation rate has been below the euro-zone average and even lower than that of Germany, the bloc’s most competitive country. Over this period, the Spanish government has consistently pushed the line that employment creation in the country has been the result of this low inflation rate, and while it may be a coincidence, Spain started to create jobs just two months after inflation in the country fell below the euro-zone average.
This reading of the Spanish economy has it that internal devaluation in Spain allowed the economy to become more competitive within the euro-zone and to boost exports – a cornerstone of the country’s recovery.
But after 39 months of gains in competitiveness, Spain’s inflation rate in December jumped to 1.4% year on year in harmonized terms on the back of higher oil prices. That’s against a 1.1% rise in the euro zone as a whole, sounding the alarm among economists. To make matters worse, the trend is expected to continue for several months triggered by rising crude prices.
