Spain is in the midst of consumer price deflation going on 15 months. Inflation is -0.4% and falling. El Confidential reports Deflation is Cast in the Spanish Economy … and No Disasters (For Now).

It is rare to see publications looking at the bright side of deflation, but here you have it.

Via translation …

The data speak for themselves. And leave no shadow of doubt about the collapse of prices. The Consumer Price Index (CPI) ended in November yoy at -0.4%. But what is more important: far from having touched the ground, continue to fall in the coming months. Func considers in particular that the CPI will end 2014 at -0.8%. In the first two months of 2015, the index will continue to plummet to -1% in February. A general fall in prices over a significant period of time constitutes deflation.

If the analysis is done taking into account not only the IPC, which covers only the rate of change in consumer purchases – but all the prices that influence inflation (as producer prices), the result is likewise significant.

Core inflation, which excludes from the calculation energy and food products, in November stood at -0.1%.

The upside is a recovery of purchasing power. And indeed, according to Social Security, pensions have earned 713 million in purchasing power this year because they were up 0.25%, when the CPI in November to November stood at -0.4%. Therefore, a gain of 0.65% purchasing power. Between 2013 and 2014, the government estimated the gain purchasing power of pensions was 2.085 billion euros. Also, wages have risen agreement 0.6% above the CPI.

Deflation positively influences the competitiveness of the Spanish economy. While the HICP in Spain stood at -0.5% yoy, the HICP in the euro zone is 0.3%. The favorable price differential Spain continues to consolidate.


HICP is the Harmonized Consumer Price Index. It differs from the US CPI as follows.

The HICP differs from the US CPI in two primary aspects. First, the HICP attempts to incorporate rural consumers into the sample while the US maintains a survey strictly based on the urban population. In actuality, the HICP does not fully incorporate rural consumers since it only uses rural samples for creating weights; prices are often only collected in urban areas.

The HICP also differs from the US CPI by excluding owner-occupied housing from its scope. The US CPI calculates “rental-equivalent” costs for owner-occupied housing while the HICP considers such expenditure as investment and excludes it.

Mike “Mish” Shedlock