Spain is the first euro-zone country to see its economy post an annual decline in consumer prices as it is hit hard by the sharp economic downturn according to the latest figures released Monday.

Spain heading towards deflationInflation fell to 0.1 per cent in March, making it the first year-on-year fall in consumer prices by a euro zone country during the financial crisis and the first time in Spain since 1961.

Final figures are expected to be released on April 15. Retail stores across Spain are announcing huge discounts as the recession dampens consumer spending. The tourism sector, which accounts for 10 per cent of GDP has also seen huge drops in prices raising the fear of economic deflation.

Economy Minister Pedro Solbes, who in November 2008 predicted inflation would fall below 1.0 percent by July 2009, once again ruled out the risk of deflation which leads consumers and companies to hold back on spending as they wait for even cheaper prices.

Standard & Poor’s, the credit rating agency, said in a recent report that “the UK, Ireland and Spain are likely to experience a sharp decline in consumer demand this year, followed by an extended period of stagnation in 2010 and 2011.”

Image by uayebt under Creative Commons.