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Stiff competition keeps lid on Spanish inflation

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Stiff competition keeps lid on Spanish inflation
Stiff competiton between Spain's supermarkets is helping keep food prices lower. File Photo: kozumel/Flickr
09:29 CEST+02:00
Spain reported on Monday a fall in annual inflation in April as energy costs tumbled and demand dried up in the recession-hit economy.

Consumer prices over the year to April climbed just 1.5 percent, after a 2.6-percent advance the previous month, according to preliminary data from the National Statistics Institute.

When compared to March, prices in the eurozone's fourth largest economy were up just 0.1 percent.

Falling fuel and electricity prices dragged down the annual inflation rate, which was adjusted to smooth out the impact of seasonal blips, the institute said.

Spain's inflation rate shot higher after the government raised the sales tax in September last year so as to boost state revenues and help curb the annual public deficit.

But prices have been kept in check by the feeble demand for goods and services in the shrinking economy, which has left more than 27 percent of the workforce searching for a job.

Rafael Pampillon, economist at IE Business School, tipped a decline in retail sales in April after a "spectacular fall" in March, when they plunged by 8.9 percent after correcting for seasonal variations.

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"These small shops and supermarkets are competing in a ferocious market. And to be able to compete and sell when demand has collapsed, when consumption falls, they have to cut prices. There is no choice," Pampillon said.

"As long as the Spanish economy remains in recession, it is unlikely that inflation will able to continue rising," the analyst said, adding however that he did not expect Spain to fall into deflation.

Spain has been battling recession since the end of 2011 and Prime Minister Mariano Rajoy's right-leaning government is forecasting 1.3-percent economic contraction in 2013. The unemployment rate is expected to stay above 25 percent until 2016.

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