By Sonya Dowsett
MADRID (Reuters) - Spanish retail sales rose at their fastest pace in seven months in July, data showed on Friday, with falling prices increasing shoppers' purchasing power to drive a sharp rebound in the economy.
Spain posted its fastest quarterly pace of growth since early 2007 on Thursday, with the economy expanding 1.0 percent in the second quarter, more than three times the euro zone average.
Retail sales rose 4.1 percent in July, the National Statistics Institute (INE) said, up from a revised 2.4 percent in June and well clear of a 0.9 percent forecast in a Reuters poll. That was the 12th straight monthly rise for what has in past been a volatile indicator.
The sharp rise was boosted by a weaker oil price and greater spending by the government ahead of a general election later this year and was likely to run out of steam next year, analysts said.
"This very strong boost we've seen around the middle of the year in consumer spending will fade in time," said Jennifer McKeown, analyst at Capital Economics.
"Spain is still very much reliant on its domestic economy - which is performing well - but it would be wrong to assume that this can continue."
Inflation data also published on Friday showed how falling prices are feeding into Spain's consumer boom.
EU-harmonised consumer prices fell by 0.5 percent year-on-year in August, undercutting a consensus forecast of -0.2 percent and a July reading of 0.0 percent.