Inflation drop moderates more than expected, with core stable at 0.6% YoY

Falling inflation eased in January to -0.3% YoY, slightly more than expected before national data were published (BBVA Research: -0.4% YoY; consensus: -0.5% YoY) although in line with the latter, due to the smaller drop in prices of energy products, but also by rising food prices and, to a lesser extent, services. However, core inflation remains steady at 0.6% YoY. We expect that inflation will continue in negative territory until the middle of the year and to remain relatively stable at very low (0.1-0.2% YoY) rates until the year-end when it will rebound to around 0.8% YoY in December, at which point the base effect of the fall in oil prices will begin to vanish. Uncertainty remains high, especially in relation to the prices of raw materials. The possible second-round effects depend basically on the recovery of domestic demand, which is currently in line with or above expectations

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