Spain's inflation fell to 2.7 percent in January, or 0.2 percent lower than in December, according to data released by the Spanish National Institute of Statistics (INE) on Friday.

The drop was largely due to continued falling prices in housing, transport and medicine, despite rising alcoholic drinks, tobacco and communications costs, said the INE.

The average price of clothes and shoes fell 14.7 percent during the sales period in January, when businesses competed to reduce stock through bargain pricing.

The cost of culture and leisure activities also dropped by 0.7 and 2.2 percent respectively in January, while tobacco and alcoholic drinks prices rose by 2.7 percent.