GDP Deflator Moderates In Q1 As Unit Profits Soften

The Spanish GDP deflator rose 3.2% Y/Y in Q1 (vs 5.0% in Q4 ’23) and 0.6% Q/Q (vs 2.1% in Q4).

• Unit labour costs contributed 2.8pp to the annual growth rate (vs 3.1pp in Q4), with unit profits contributing 0.1pp (vs 0.2pp prior).
• This development is consistent with the April manufacturing PMI, which noted that firm pricing power had been limited by competitive pressures, suggestive of margin compression.
• This also appears in line with the ECB’s central scenario from the March projections, where unit labour cost rises are buffered by falls in unit profits, helping the overall GDP deflator moderate.
• Unit labour costs rose 5.8% Y/Y in Q1, moderating from 6.5% Y/Y in Q4. This moderation came as real productivity per hour worked rose 2.4% Y/Y in Q1 (vs -0.8% in Q4).
• Total compensation of employees remained strong at 8.4% Y/Y (vs 8.8% prior), while hours worked growth moderated to 1.3% Y/Y (vs 2.3% prior).
• On a Q/Q basis, unit labour costs rose 2.1% (vs 0.5% prior), after an increase in total compensation and falls in total hours worked and real productivity per hour worked.
• The above figures are based on Eurostat data.