Consumer prices slide again in August

Spanish consumer prices fell again in August, dropping by 0.5 percent on an annual basis, preliminary figures from the national statistics institute showed Thursday, heightening concerns about deflation risk in the eurozone.

The drop follows a sharper-than-expected fall in consumer prices in July of 0.4 percent on an annual basis due to the lower cost of entertainment, electricity, tobacco and food.

The fall in prices reflects weak domestic demand in Spain, still struggling with a 24.5-percent jobless rate even as the economy slowly expands after emerging gingerly in mid-2013 from a double-dip recession.

The latest inflation report is likely to be of concern to policymakers concerned about deflation, in which falling prices choke off growth.

Broad, sustained falls in consumer prices can lead people to postpone purchases in the hope of future price declines, a reaction that brakes economic activity. The phenomenon can quickly degenerate into a vicious downward spiral that is notoriously difficult to reverse.

The European Central Bank (ECB) targets inflation of just below 2.0 percent over the medium term. It considers anything below 1.0 percent to be in a zone posing a risk of deflation.

The ECB has taken unprecedented measures to head off deflation, including the introduction of negative interest rates for banks which want to deposit excess reserves with the central bank.

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