Spain not sliding into deflation: economy minister

[MADRID] Spain is not at risk of sliding into deflation, its economy minister said Sunday, adding that five straight months of falling consumer prices have helped the country's economic recovery.

A key feature of deflation is that households and businesses delay spending as they expect prices to drop further.

But "in Spain, the opposite is happening - an increase in consumption and investment," Luis de Guindos told conservative newspaper ABC.

"Falling prices have had a positive impact on competitiveness and spending power, which in turn helps Spain's economic recovery," he said.

Official data showed Friday that consumer prices dropped 0.5 per cent in November, the fifth consecutive month of declining inflation in Spain.

The chronically low level of inflation across the 18-nation eurozone has fuelled concern the region could slip into deflation - a sustained and widespread drop in prices that hampers economic activity and threatens job losses.

To combat that risk, the ECB has cut interest rates and offered special measures to pump liquidity into the financial system. It has said it may take even more drastic action if required.

The ECB's annual inflation target stands at just under 2.0 per cent.

AFP