Prices are unlikely to increase less than 3.5% as upward price movements in October will make it hard for the Consumer Price Index (CPI) to drop significantly in November and drop to 3% as the government predicts.
In addition to a handful of issues that the Spanish economy is dealing with right now, it will have to face inflation. This economic phenomenon acts like a hidden tax that hits all Spanish citizens and pushes pension spending upward. Pensioners are receiving extra compensation because of the rising CPI. If prices stay at 3.5%, then the government will have to spend an extra 5 billion euros on retired workers' pensions.
The big issue is that neither the 2012 nor the 2013 budgets are considering this spending increase, so the deficit will have go up by this amount.
