Flash Spanish HICP inflation at -0.6% yoy in May

Spanish HICP inflation was at -0.7% yoy in April after its -0.8% yoy reading in March. Energy and goods prices applied upward pressures, adding 4bp and 5bp respectively to the headline figure The food component remained stable while the prices of services kept a lid on a stronger rebound, falling from 0.2% yoy in March to 0.1% yoy in April and cutting 4bp from the headline print. In May, these trends is expected to continue with a further rise in the energy component. 

Electricity prices are reported to have risen by around 4% in May, and the fuel component should also see a monthly gain, although less than in the last couple of months. 

Food prices are also expected to rise as structural and economic difficulties keep price pressures high. A crisis in the fruit and vegetable sector is being caused by the breach of partnership agreements with certain countries, notably Morocco, resulting in strong pressure on prices and increased production costs, as well as by the Russian veto on imports and growing nationalism in European markets. 

Although Spanish unemployment fell at the fastest rate ever recorded last month, more than four million people remain out of work and the unemployment rate is still over 20%, notes Societe Generale. Therefore analysts expect only muted price pressures in the core components. 

"Spanish HICP inflation should remain in negative territory until the summer, averaging -0.4% in 2015 and 1.0% in 2016. The core metric should remain around the zero bound for 2015 and should pick up slightly in 2016 to 0.1%", said Societe Generale in a report on Friday.