The Spanish Economy Has Entered Deflation After The Health Crisis

The shock faced by Spain is greater than that of neighbouring countries

Link Securities | According to preliminary data from the Spanish National Institute of Statistics (INE), the Consumer Price Index (CPI) fell to -1% year-on-year in May (-0.7% in April). The drop reflected the decline in fuel and oil prices, while food prices continued to rise. May inflation has not seen a decline to -1% since 2016. In comparison with April, the CPI remained stable (0.0%). Analysts expected the CPI to remain stable month-on-month and to fall by 0.8% year-on-year. The INE flagged that for the calculation of the May CPI 18.6% of the prices had to be estimated, corresponding to 21% of the index’s weighting.

With respect to the harmonised CPI (HICP), it also remained stable in May compared with April, while it decreased 0.9% from a year earlier (-0.7% in April). In this case, the actual readings coincide with analysts’ expectations.

These preliminary readings for May confirm that the Spanish economy has entered deflation after the health crisis. We do not rule out that the entire Eurozone could end up heading into deflation over the coming months, at least those economies most penalized by the pandemic.

The INE also reported on Spanish retail sales for April, which registered a record annual drop of 31.6%. This decline was obviously caused by limitations on activity during the toughest moments of the state of alarm. The INE considers that 46% of companies had to close their doors in April. In terms of distribution methods, the greatest drop in sales in the year was seen in small establishments with a fall of 51.1%. In contrast, the large chains suffered less as they were supported by their food stores, although they also showed significant deterioration (-6.5% a.).