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Inflation

Spanish prices slump into deflation territory

Prices in Spain fell in March for the first time in four years. What may sound good for consumers is bad for the economy. Falling prices may set off a downward spiral of lower investment, less growth and fewer jobs.

Consumer prices in Spain fell at an annual rate of 0.2 percent after posting just a slight increase of just 0.1 percent in February, the country's National Statistics Office said Friday as it released preliminary figures.

The decline was the first since October 2009 and followed weak demand in Europe's fourth largest economy which is just beginning to climb out of a two-year recession. In the second half of 2013, Spanish economic output started to expand, but the country is still saddled with mass unemployment above 26 percent.

In March, Spanish inflation remained well below the European Central Bank's (ECB) target of about 2 percent, and appears set to fan new fears about deflation spreading across the euro currency area.

Deflation worms its way into Greece

Deflation denotes a broad and sustained decline in prices, which may lead consumers to postpone purchases in anticipation of even lower prices. This, in turn, causes businesses to lower investment and cut jobs, thus slowing economic output even further.

European Central Bank President Mario Draghi vowed this week to do everything possible to ensure the eurozone didn't slip into deflation. In order to achieve this, the ECB might cut is benchmark interest rate, currently standing at a historic low of 0.25 percent, even further or use other measures of monetary easing.

The ECB might already be forced to act at a meeting on Thursday next week, following a eurozone inflation estimate for March due to be released on Monday.

uhe/kms (AFP, dpa, Reuters)

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