Deflation looms as eurozone inflation drops
Print Edition
EUROZONE consumer prices fell by a record 0.6 percent in January, confirming deflation could be taking hold for the long term, EU data showed yesterday.
The drop from minus 0.2 percent in December appears to back the European Central Bank’s decision last week to launch a bond-buying spree to drive up prices.
Plummeting world oil prices were largely to blame for the fall in the 19-country eurozone, already beset by weak economic growth and high unemployment, the European Union’s data agency Eurostat said.
The -0.6 inflation rate matches the same record drop in prices the eurozone set in July 2009 at the worst of the global financial crisis.
But there was better news on the unemployment front as the jobless rate fell to at 11.4 percent in December, its lowest level since August 2012.
“Falling prices today and alarmingly pessimistic expectations of where prices are heading in the future proves beyond all reasonable doubt it was high time to act,” Richard Barwell, senior European economist at Royal Bank of Scotland Group told Bloomberg News.
But Barwell added it was “risky starting QE this late in the deflation game.”
With fears of deflation increasing, the ECB last week finally decided to embark on a quantitative easing program involving the purchase of 1.14 trillion euros (US$1.29 trillion) in sovereign bonds.
In a deflationary spiral, businesses and households delay purchases, throttling demand, triggering recession and causing companies to retrench workers.
The move comes as the eurozone faces renewed worries from Greece, after the anti-austerity Syriza party came to power in elections with a promise to renegotiate Greece’s foreign debts.
Energy prices in the eurozone, which added Lithuania on January 1, sank a huge 8.9 percent in December, greater than an already steep fall of 6.3 percent a month earlier.
Oil prices have plummeted in recent weeks, as OPEC maintains its production levels despite weak demand.
The fall in unemployment to 11.4 percent from 11.5 percent in November and 11.8 percent a year before gave some cheer, even if it still higher than before the eurozone debt crisis.
There were 18.13 million unemployed across the eurozone in December, 157,000 less than in November and 693,000 less than a year before.
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