Spain dips into deflation as EU industry slows

THE SPANISH economy officially entered a state of deflation in October, with the country’s consumer price index falling into negative figures, according to official figures.

Fulfilling recent fears of falling prices in Europe, and despite an official end to the country’s two-year recession at the end of October, the consumer price index (CPI) fell by 0.1 per cent between October 2012 and last month, the National Statistics Institute said.

Spain’s rate of inflation shows little sign of returning to the European Central Bank’s (ECB) target level of close to two per cent.

As recently as the start of the year, Spain’s CPI was running above two per cent, before a slow downward climb from the middle of this year.

Industrial production figures for the wider Eurozone in September were also announced yesterday, with a 0.5 per cent drop recorded from August. Despite the end of the Eurozone’s technical recession, production is still lower than it was throughout the majority of 2011.

Of the large economies in the region, Germany and France saw declines of 0.8 and 0.4 per cent respectively, while Italy and Spain saw moderate improvements of 0.4 and 0.7 per cent. The euro area’s industry was still in a better place than it was during September 2012’s slump, with production up 1.1 per cent over the year.

Portuguese figures yesterday confirmed the trend of deflation in the periphery of the Eurozone, with consumer prices falling by 0.2 per cent over the year to October.

Similarly, the Greek economy has been hit by the currency union’s most prolonged bout of deflation, with annual CPI in negative figures for the past eight months.

The ECB trimmed the currency union’s benchmark interest rate last week, from 0.5 per cent to 0.25 per cent, after inflation across the region came in at only 0.7 per cent for October.