Spain’s January Inflation Slowest Since Franco Era

By Ben Sills

Jan. 30 (Bloomberg) -- Spain’s inflation rate fell in January to the lowest since the death of dictator Francisco Franco triggered the country’s return to democracy more than three decades ago.

Falling oil costs and a slump in domestic spending are dragging down prices as Spain sinks into its worst recession for half a century. The contraction, which began in the third quarter, will stretch into 2010, the International Monetary Fund forecast this week.

“It’s excellent news for an energy-dependent economy like ours that oil is back at $40,” Jose Carlos Diez, chief economist at Intermoney SA, Spain’s biggest bond dealer, said.

Consumer prices increased 0.8 percent from a year ago based on the European Union’s calculation method after a 1.5 percent increase in December, the Madrid-based National Statistics Institute said in an e-mailed statement today. Economists expected Spanish price gains to slow to 1.1 percent, according to the median of 15 estimates in a Bloomberg News survey.

“We will have very, very low rates of inflation especially until the summer,” Deputy Finance Minister David Vegara said today.

Franco died in November 1975 after governing Spain since the end of the country’s civil war in 1939. His successor, King Juan Carlos, then steered the country to a democratic constitution, ratified by a 1978 referendum. The country’s inflation rate last dipped this low in June 1969 when prices rose 0.5 percent from the year earlier. The inflation rate has dropped from 5.3 percent in July, the highest in more than a decade, when crude oil peaked at $147.27 a barrel.

“It’s going to be driven predominantly by food and energy price inflation, but we’re also going to be looking for some softening in underlying inflation given the deterioration in the economy,” Nick Matthews, an economist at Barclays Capital in London, said before the release. “There is a chance that we will see some negative annual rates of inflation in the middle of this year.”

The statistics institute will publish a breakdown of consumer-price shifts on Feb. 13.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net.