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September 24, 2017

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Spain reports weak inflation in May as deflation strikes eurozone

MADRID--Spain reported Friday a feeble increase in consumer prices in May as the eurozone struggled with the specter of an economically damaging deflationary spiral.

Spanish consumer prices rose at an annual rate of just 0.2 percent in May, held down by lower food and soft drink prices, said an initial estimate by the National Statistics Institute calculated in line with European Union norms.

In a period of deflation, when consumer prices fall for a broad range of items over a sustained period, people and businesses tend to postpone purchases while hoping for further price declines in the future.

Deflation can thus push an economy into a vicious spiral of falling growth and rising unemployment, and it is notoriously difficult to reverse.

Consumer prices in Spain appear to be skirting in the danger zone, after declining by 0.2 percent in March and edging up by just 0.3 percent in April — still well below the European Central Bank's target inflation rate of about two percent.

ECB president Mario Draghi said this week the eurozone bank was alert to the risk of persistently low inflation. Draghi told analysts in Sintra, Portugal that the eurozone's central bank expected low inflation eventually to return to close to 2.0 percent.

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