Finance & Business World

Spain’s inflation rate fell to its lowest in almost a decade in December as oil prices slid from a July peak and weak demand encouraged retailers to cut prices.

Consumer prices gained 1.5 percent from a year ago, using the European Union’s calculation method, compared with 2.4 percent in November, the Madrid-based National Statistics Institute said today in an initial estimate. That was the lowest since January 1999 and compares with a median forecast of 1.8 percent in a Bloomberg News survey of six economists.

Daniele Antonucci, an economist at Merrill Lynch in London, said the Spanish data indicated that euro-region inflation, due to be released tomorrow, could come in lower than the 1.8 percent forecast.

“If you combine this with the reduction in Germany of three-tenths of a percentage point, and also in Belgium, and now in Spain, there’s a risk inflation will moderate more than expected,” he said. “A lower headline rate now looks likely, in fact.”

The combination of the credit crunch and the collapse of a construction boom has pushed Spain into its first recession since 1993. With the global slowdown stoking concern about deflation across the world economy and crude oil prices 68 percent below their July peak, the European Central Bank has room to cut interest rates no fax cash advances.

The Frankfurt-based bank has already lowered its benchmark rate by 175 basis points since early October to 2.5 percent.

Retail Sales

Spain’s economy contracted for the second consecutive quarter in the last three months of 2008, the Bank of Spain said Dec. 30, while retail sales have fallen every month for a year.

Energy and food prices were the main reason for the slowdown in inflation, but weak demand probably also played a role, Antonucci said.

“There are also downward pressures because the economy is in recession, the fourth quarter was probably worse than the third quarter and we expect several quarters of negative growth in 2009,” he said.

No breakdown is given for the inflation figures until final data on Jan. 15.

Prime Minister Jose Luis Rodriguez Zapatero said Dec. 18 that the inflation rate would be 1 percent “at most” in 2009, a year when the International Monetary Fund expects the Spanish economy to shrink at least 1 percent.

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