Spanish consumer prices fell by a record this month, highlighting the risk of deflation as the highest unemployment rate in Europe and weak demand forced companies to slash prices.
Consumer prices fell 1 percent from a year earlier, using the EU calculation, after a 0.9 percent decline last month, the Madrid-based National Statistics Institute said in a statement yesterday.
DECLINES
Prices also declined in April after falling in March for the first time since 1952. Spanish inflation, which has generally been faster than the euro-area average over the last decade, is now slowing more sharply than in the rest of the region as the recession has pushed the unemployment rate to a European high of 18 percent.
Even with prices falling by a record, Spanish Finance Minister Elena Salgado has said she saw “no risk” of deflation in Spain.
DEFLATION
“Spain is in the top three countries in terms of deflation risks,” along with Ireland, said Martin van Vliet, senior economist at ING Group in Amsterdam. Spain’s economic slump has been more “painful” and it “won’t recover as fast as other economies.”
Spain, suffering from the dual impact of a housing-market collapse and the financial crisis, will contract 4.2 percent this year and 0.9 percent next year, even as other European countries return to growth, the OECD forecast last Wednesday.
Irish prices fell 1.7 percent last month from a year earlier, data published on June 11 showed.
German inflation remained at zero for a second month this month, the lowest level in at least 13 years.
European inflation probably turned negative this month for the first time since the series started in 1995, economists surveyed by Bloomberg said. The EU was scheduled to publish that data yesterday.
The European Central Bank (ECB), which targets an inflation rate of just under 2 percent, held its benchmark interest rate at a record low of 1 percent this month.
ECB President Jean-Claude Trichet expects inflation to “temporarily remain negative over the coming months,” before turning positive by the end of this year.
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