Prices climbed by 2.6% in July because of the VAT raise by fivepercent, with the annual inflation soaring to 7.1% from 4.4% inJune, show data from the National Statistics Institute. Food became1.9% more expensive, while non-food prices rose 3.1%.
Previous analyst forecasts indicated an average 2.9% priceincrease, whilst calculations on the impact of a full transfer ofthe VAT increase into end prices point to a 4.2% monthly inflation.The VAT increase, however, overlapped with the decline inconsumers' purchasing power, so economic operators did not pass onthe full shock of the VAT raise to customers.
"The inflation rate was a pleasant surprise in July. The fact thatthe VAT increase was not entirely transferred to consumer prices isdue to weak private consumption, which offset the abruptmodification of the taxation system. Some retailers decided to bearthe VAT increase instead of transferring the shock to customers byraising prices," commented Eugen Şinca, analyst within BCR'sresearch department.
The biggest price increases were recorded in July for cigarettes(9.5%), fruit (6.6%) and water, sewerage, and sanitation services(5.3%). On the other hand, the price of aeroplane tickets fell4.5%. Vegetable prices fell 1% and egg prices by 0.5%.
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