In Spain they are worrying about the dreaded deflation. As unemployment hits the 15.5 per cent mark, prices are going down. Last month's drop in retail prices might have been only 0.1 per cent but Spain is the first of the 16 nations using the Euro to record a negative inflation rate. It is the first negative figure since the country began collecting such figures in 1961 and there is an uneasiness that the downward trend might be the stast of a deflationary spiral.
In Britain the "d" for deflation is also being used after figures overnight showed the retail price index falling in March for the first time in nearly 50 years. Since reaching a peak of 5 per cent last September, the British RPI has fallen sharply with lower prices and lower interest rates driving down mortgage payments while gas and heating fuel prices have added to the downward pressure on prices. The Financial Times of London reports that many economists expect RPI to remain negative for an extended period. However, economists and the Bank of England, the paper says, are more concerned about the slowing rate of the consumer price index – which excludes some variables including mortgage interest payments. The CPI is showing more resilience than many had expected and in March was at 2.9 per cent, down from 3.2 per cent in February but still well above the Bank’s 2 per cent target. Falling energy bills and food prices in the month helped pull inflation down.