Spanish consumer prices fall 0.2% in March

Friday 28 March 2014 09.17
Spanish inflation falls for the first time in over four years
Spanish inflation falls for the first time in over four years

Spanish consumer prices fell in March for the first time in more than four years, initial data showed today, as fears of a damaging deflationary spiral stalked the euro zone.

Consumer prices in Spain fell at annual rate of 0.2% after edging up by 0.1% the previous month, the National Statistics Office said in a preliminary report.

It was the first annual decline in Spanish consumer prices since October 2009 and a worrying sign for the euro zone's fourth-largest economy, which is emerging gingerly from five years of stop-start recession.

A broad, sustained decline in prices can lead shoppers and businesses to postpone purchases until prices tumble even further, sending the economy into a downward slide.

Inflation has been kept in check by weak demand in Spain, which struggled out of its latest two-year economic downturn in the second half of 2013 and still has an unemployment rate above 26%.

Inflation in Spain remains well below the European Central Bank's target for the euro zone of about 2%. 

European Central Bank president Mario Draghi vowed this week to do everything possible to ensure the single currency area does not slip into deflation.

"If any downside risks to the scenario appear, we stand ready to take additional monetary policy measures that ensure our mandate is fulfilled," Draghi told a conference in Paris.

"In other words, we will do what is needed to maintain price stability," he added.

Inflation in the 18 countries that share the euro is running at 0.8%.

To counter the deflationary risk, the ECB has cut and held its key interest rates at an all-time low of 0.25%. According to its latest projections, the ECB is pencilling in a pick-up in inflation to 1% in 2014, 1.3% in 2015 and 1.5% in 2016.