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News : EU Economy Last Updated: Jan 14, 2015 - 5:15 AM


Eurozone annual inflation dips in 2014 - deflation risk hits red
By Michael Hennigan, Finfacts founder and editor
Jan 7, 2015 - 10:20 AM

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The Eurozone annual inflation rate fell December 2014 and the risk of deflation entered the red zone.

The news today is expected to increase the likelihood that the European Central Bank will announce a program of quantitative easing involving purchases of sovereign bonds at its policy meeting on January 22.

The official inflation target of the ECB is "below but close to 2%."

Annual inflation  is expected to be -0.2% in December 2014, down from 0.3% in November, according to a flash estimate from Eurostat, the statistics office of the European Union.

This negative rate for Eurozone annual inflation in December is driven by a fall in energy prices (-6.3%, compared with -2.6% in November), while prices remain stable for food, alcohol & tobacco (0.0%, compared with 0.5% in November) and non-energy industrial goods (0.0%, compared with -0.1% in November). The only annual increase is expected for services (1.2%, stable compared with November).

Economists do not regard deflation as simply falling prices as the key trigger is a cutback in consumer and business spending as prices are expected to fall further.

The harmonised rate fell to-0.2% in the recession period of June 2009 and the annual rate was negative until April 2010 when it was at zero. After a slight dip in May of that year, it was at 0.3% in June 2010.

The euro area member states as at 31 December 2014 were Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland. Lithuania is a member of the euro area from 1 January 2015, and will be included in the calculation of the flash estimate for January 2015.

 

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