Zero inflation: Prices freeze in stagnant Spain

AFP/The Local
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Zero inflation: Prices freeze in stagnant Spain
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Spain reported Friday a zero-percent annual inflation rate in June, even as the European Central Bank fights off a deflationary threat hanging over the region.


Consumer prices were unchanged in the year to June, held down by the low cost of food, soft drinks and electricity, the National Statistics Institute said in a preliminary estimate calculated in line with European Union-agreed norms.

Weak domestic demand is keeping a lid on prices in Spain, still struggling with a 26-percent jobless rate despite the economy emerging gingerly in mid-2013 from a double-dip recession sparked by a 2008 property crash.

SEE ALSO: Inflation could kill off Spain's recovery: IMF

On June 5th, the ECB rolled out an unprecedented package of measures, including negative interest rates for banks that want to deposit excess reserves with the central bank, in its fight to head off the threat of deflation in the euro area.

When consumer prices fall broadly over a sustained period, people tend to postpone purchases in the hope of future price declines, a reaction that brakes economic activity.

The phenomenon can degenerate into a vicious downward spiral of falling prices and declining economic activity that is notoriously difficult to reverse.

In April, the International Monetary Fund said Spain was the only country in the eurozone at "high risk" of deflation and warned the European Central Bank to take action on the problem.


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