Spain's Inditex, the world's largest fashion retailer and parent of clothing chain Zara, said on Wednesday it would not increase prices following the Spanish government's decision to hike Value Added Tax by 3 percentage points to 21 percent.

Photo: Zara

"Inditex is maintaining its price stability policy which it used to absorb Spain's last VAT hike by identifying efficiencies in other parts of the business," the Madrid-listed company said in a statement, adding that the policy applied to all its chains.

Spain announced a swathe of new taxes and spending cuts on Wednesday designed to slash 65 billion euros ($79.66 billion)from the budget deficit by 2014 as its recession-plagued economy struggles to meet tough targets agreed with Europe.