Inflation picked up in Spain in July due to the introduction of a copayment system for medicines, which pushed up prices, the National Statistics Institute (INE) said Monday. The increase took place despite domestic demand remaining weak as the INE also confirmed earlier estimates by the Bank of Spain that showed that the recession deepened in the second quarter of the year.

A flash estimate by the INE indicated the consumer price index was up an annual 2.2 percent in July, compared with 1.9 percent the previous month.

The government’s decision to raise the standard rate of the value-added sales tax to 21 percent from 18 percent, and the reduced rate from eight percent to 10 percent as of the start of September, will generate further inflationary pressure.

The INE said GDP in the second quarter of the year shrank 0.4 percent from the previous three months when it contracted 0.3 percent. On an annual basis, output fell 1.0 percent after declining 0.4 percent in the first quarter.

The government earlier this month revised its economic forecasts to show GDP contracting 1.5 percent this year, compared with a previous estimate of a fall of 1.7 percent.

However, for next year it now expects output to remain negative, with GDP seen declining 0.5 percent when previously it forecast modest growth of 0.2 percent.