Spain Producer Prices Rise Most in Two Decades

By Emma Ross-Thomas

Aug. 25 (Bloomberg) -- Producer prices in Spain rose at the fastest pace in almost 24 years in July as record oil prices increased costs for manufacturers.

The price of goods leaving Spain's factories, refineries and mines increased 10.2 percent from a year earlier after advancing 9 percent in June, the National Statistics Institute in Madrid said in an e-mailed statement today. Producer prices gained 1.4 percent from June, the biggest monthly increase in more than two years.

Crude oil prices have risen by 60 percent in the last year and touched a record $147.27 a barrel in New York in July. That helped push euro-zone consumer price inflation to more than a 16-year high, making it harder for European Central Bank to cut interest rates, even as the region's economy slows.

The price of intermediate goods in Spain rose 7.3 percent from a year earlier, compared with 6.3 percent in June, signaling further rises in consumer prices.

``This warns us about the performance of other prices further ahead and that is why it worries us,'' said Diego Fernandez, an economist at Fortis Bank in Madrid. He estimates that rises in the price of intermediate goods take about a year to pass through to final prices.

Still, oil has eased 22 percent from its July record and economists said Spain's producer price inflation probably peaked in July. An economic slowdown in Spain would make it difficult for companies to pass on higher production costs to consumers, they said.

Spain's consumer prices gained 5.3 percent from a year earlier in July, the fastest in more than a decade and above the average for the euro region, previous data showed.

The increase in Spanish producer prices was led by energy as the cost of products from oil refineries rose 52 percent from a year earlier. Food and drink products added 10 percent, the institute said.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net