Spanish consumer prices rise for first time in a year

Spain’s consumer prices edged up in June for the first time in nearly a year as an economic recovery picks up, though the minimal 0.1 per cent rise signalled subdued inflation pressures there and in the euro zone as a whole.

Prices rose 0.1 per cent year-on-year in June, final data from the country’s National Statistics Institute showed on Tuesday, after 11 straight months of falls. In May, prices had fallen 0.2 per cent.

The June data, which comes two days before final figures for the euro zone, matched the preliminary reading.

Inflation in the region was dragged down in the past year by a sharp drop in oil prices, helping boost Spain’s recovery by giving cash-strapped consumers more spending power.

But the prolonged spell of low prices also raised the threat of a self-perpetuating and growth-harming deflationary spiral, prompting the European Central Bank to launch a €60-billion per month asset purchase programme in March.

That helped prop up prices, though euro zone inflation - which preliminary data showed at 0.2 per cent in June - is still far from the ECB’s target of below but close to 2 per cent.

"The risk of deflation has substantially faded (in Spain and in the euro zone)," said Victor Echevarria, economic analyst at Spanish financial consultancy AFI. "There's also been the very positive effect of the ECB's quantitative easing measures."

According to the EU-harmonised inflation measure that the ECB uses as its reference point, Spanish consumer prices were unchanged from a year earlier in June, the first time in 11 months the figure had not been negative.

Stabilising energy prices have also help sustain the upward trajectory in Spanish prices, though sectors such as transport are still registering declines.

The government expects Spain's economy to grow 3.3 per cent this year, one of the fastest rates in the euro zone, and while unemployment is still close to the levels of crisis-hit Greece, at nearly one in four of the workforce, a pick-up in job creation is also feeding into the spending recovery.

Reuters