Spain Consumer Prices Drop by Record as Slump Deepens

By Emma Ross-Thomas

May 13 (Bloomberg) -- Spanish consumer prices fell the most on record in April as companies cut prices to spur demand amid the worst recession for 60 years.

Consumer prices fell 0.2 percent from a year earlier, using the European Union’s calculation method, more than estimated in an initial reading published April 30, the Madrid-based National Statistics Institute said in an e-mailed statement today. Prices fell 0.1 percent in March, the first annual drop since 1952. Underlying prices rose 1.3 percent from a year earlier, the same as in March.

Spanish inflation, which has generally been faster than in the euro area average over the last decade, is now slowing more sharply than in the rest of the region. The dual impact of a housing market collapse and the financial crisis has pushed Spain’s unemployment rate to a European high of 17.4 percent. The economy will contract 3.2 percent this year and shrink a further 1 percent in 2010, the European Commission forecasts.

“Companies took a long time to cut prices, but now they are doing it very quickly,” said Jose Carlos Diez, chief economist at Intermoney Valores in Madrid. “We’re devaluing,” he said.

Amid global concerns about deflation, the European Central Bank cut its benchmark interest rate to a record low of 1 percent on May 7 and said it would buy 60 billion euros ($82 billion) of covered bonds as part of its effort to revive the region’s economy.

President Jean-Claude Trichet said that day that he expects “negative inflation” in the euro region for a number of months this year before accelerating again.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net