Spanish consumer prices showed their first annual fall on record during March, but while some analysts saw a risk of deflation, most expected the economy to avoid a prolonged period of negative inflation.
Spain's March consumer price index fell by 0.1 per cent from a year earlier, and rose 0.2 per cent month on month, final data from the National Statistics Institute showed today.
This was the first annual fall in records dating back to January 1962.
“The risk of deflation is significant, but we don't think it will occur. We will see negative figures for a few months but inflation will pick up at the end of the year," said Citigroup analyst Jose Luis Martinez.
Consumer price inflation has been falling rapidly across the 16-member euro zone on lower oil prices and recession, with Ireland and Portugal also showing annual declines in March.
As the year progresses, Spanish prices are expected to suffer much sharper falls of up to 2 per cent, then return to positive territory early next year on comparative effects of low food and oil prices in 2009.
Economists are more worried about core inflation, which strips out volatile fresh food and oil prices.
Spain's core or underlying consumer price index tumbled to a rate of 1.3 per cent in March from 1.6 per cent in February.
"We have in our central scenario a relatively long period of negative core inflation in Spain starting from mid next year, and lasting for a couple of years, like in the euro zone," said BNP Paribas economist Luigi Speranza.
Reuters