Stiff competition keeps lid on Spanish inflation

Spain reported on Monday a fall in annual inflation in April as energy costs tumbled and demand dried up in the recession-hit economy.

Stiff competition keeps lid on Spanish inflation
Stiff competiton between Spain's supermarkets is helping keep food prices lower. File Photo: kozumel/Flickr

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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Spain’s inflation soars to 29-year high

Spanish inflation accelerated in November to its highest level in nearly three decades on the back of rising food and gas prices, official data showed Monday.

black friday spain
Black Friday sales can't disguise the fact for shoppers that life in Spain is getting increasingly expensive. Photo: GABRIEL BOUYS / AFP

Consumer prices jumped by 5.6 percent, up from a 5.4 percent increase in October, according to preliminary figures from national statistics institute.

That is its fastest pace since September 1992, when the rate was 5.8 percent.

The surge in inflation in the eurozone’s fourth-largest economy was due largely to a spike in food prices, followed by higher gas prices, the statistics office said.

Electricity costs, however, declined slightly after a month-long acceleration, it added.

As in other European Union nations, inflation in Spain has risen since the start of the year after consumer prices declined during most of 2020 due to the economic impact of pandemic lockdowns.

In October, eurozone inflation reached 4.1 percent, well above the European Central Bank’s target of two percent and equal to a high set in July 2008.

But the bank believes eurozone inflation will peak in November and is set to gradually slow next year as supply bottlenecks and the energy crunch ease, board member Isabel Schnabel said earlier this month.

Investors worry central banks will withdraw their stimulus measures sooner than expected to tame inflation.