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Spain's new government agrees to raise pensions in line with inflation

MADRID (Reuters) - Spain’s government has reached a preliminary deal to raise retirement pensions in line with inflation, suggesting its new Socialist leaders may take a less restrictive approach to spending after years of austerity under their predecessors.

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The multi-party commission that controls social spending had agreed to the raise, though full details were still to be decided, the Socialist party said in a tweet late on Tuesday.

“Now the right must allow that all pensions rise with inflation, also in times of crisis,” it said.

Since 2014, retirement pensions have risen by a below-inflation 0.25 percent per year.

Consumer prices rose 2.1 percent year-on-year in May according to data from the National Statistics Institute on Wednesday, the sharpest increase since April 2017.

Spain’s conservative People’s Party (PP), forced out after six years in government in a no-confidence vote that followed a slew of corruption cases involving PP members, kept a tight rein on spending to cut one of the euro zone’s highest public deficits.

The welfare system’s backup fund was decimated by around five years of recession following a burst real estate bubble in 2008, while an aging population means funds are still being drained from public coffers faster than they can be replenished.

Spain has around 8.7 million retirees claiming a pension and a falling birth rate has prompted concerns of a potential pensions time bomb and calls for a deeper reform of the system than that passed in 2013.

Spain cut its public deficit to just over 3 percent of economic output last year, in line with European Commission targets, from almost 11 percent in 2012 through unpopular spending cuts and tax hikes.

Proponents of pension hikes argue that strong growth since the slump ended in 2013 has helped ease budget pressures.

Agreed raises during times of economic downturns were still being debated as part of the agreement, Labour Minister Magdalena Valerio said on Wednesday.

Reporting by Paul Day and Tomas Cobos; editing by John Stonestreet