Inflation at lowest level in over 50 years

Inflation in Spain in the first month of the year was at its lowest level on record reflecting the ongoing weakness of domestic demand due to high unemployment and falling wages. The National Statistics Institute (INE) on Friday confirmed earlier flash estimates that the consumer price index fell 1.3 percent in January from December as the annual rate slowed from 0.3 percent to 0.2 percent, the lowest level since the INE began compiling the current series in 1961.

Spain pulled out of recession in the third quarter of last year but the contribution of domestic demand to GDP remaining negative.

Annual inflation has now remained under 0.5 percent for the past five months and is well below the euro-zone average in January of 0.7 percent. Analysts have expressed fears of deflation taking a hold on the euro-zone economy as it did in Japan for over a decade. The ECB’s medium-term target for inflation is close to but below 2 percent.

The INE said the main reason for the easing of inflationary pressure was a decline in fuel and oil prices compared with a year earlier. Underlying, or core inflation, which factors out volatile food and energy prices, remained at 0.2 percent at the start of the year.

The harmonized index of consumer prices, which is used for comparative purposes with the rest of Europe, fell 1.8 percent from December, while the annual rate was steady at 0.3 percent.