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Strategies & Market Trends : Countries

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From: Sam Citron3/30/2009 3:15:12 PM
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Spain becomes 1st in euro-zone to post deflation
Associated Press, 03.30.09, 11:01 AM EDT

Spanish consumer prices fell 0.1 percent in March from a year earlier, making it the first euro-zone economy to post an annual rate of deflation - as opposed to inflation - since the international financial crisis began.

The year-on-year decline is the first of its sort in Spain since records began in 1961, the National Statistics Institute said Monday.

It was Spain's eighth consecutive monthly decline in the consumer price index. Year-on-year, prices were up by just 0.7 percent in February.

Economy Ministry secretary David Vegara said Spain was likely to see negative price growth for several more months, owing to oil price drops. However, he rejected suggestions the country was entering a deflationary spriral - where expectations of lower prices cause consumers to hold off spending, in turn causing retailers to lower prices further.

Other euro-zone countries are also expected to see prices shrink in the coming months and the European Central bank says the entire zone may experience deflation briefly this year.

Spain's once-booming economy has shrunk over the past year mainly because of stagnation in the key construction sector and the international crisis.

The country now has an EU-high unemployment rate of 13.9 percent, and the government forecasts it will rise to 16 percent by the end of the year.
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