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Saturday 23 August 2014

Spectre of deflation haunts eurozone following release of fresh figures

Published 17/01/2014 | 02:30

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International Monetary Fund Managing Director Christine Lagarde Meets With Students At Seoul National University...Bloomberg Photo Service 'Best of the Week': Christine Lagarde, managing director of the International Monetary Fund (IMF), adjusts her hair as she makes a speech at Seoul National University in Seoul, South Korea, on Thursday, Dec. 5, 2013. South Korea could see long-term growth of 3.5%-4% over the next decade by implementing right package of reforms, Lagarde said. Photographer: SeongJoon Cho/Bloomberg...I
International Monetary Fund Managing Director Christine Lagarde

Eurozone inflation slowed in December, the European Union's statistics office confirmed, in what the ECB attributed last week to a one-off change in the method of calculating price growth in Germany.

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Price pressures are weak, enough, however, to prompt concern at the IMF about deflation.

Consumer prices in 17 countries sharing the euro last year rose 0.3pc on the month, putting the annual inflation rate at 0.8pc, down from 0.9pc in November, but a tad above 0.7pc in October.

At home, the Central Statistics Office said inflation was 0.1pc in December, bringing the annual rate to 0.4pc using EU methods of calculating inflation.

The ECB, which wants to keep inflation below, but close to, 2pc over the medium term, expects a prolonged period of low inflation but sees no immediate risk of deflation -- or actual falling prices.

"We were all aware that the decline in the inflation rate in December. . . (It) was expected, and it was caused by a technical adjustment in the statistics of the services inflation in Germany," ECB president Mario Draghi said last week.

"(This) basically produced a much flatter seasonal adjustment and it meant that the December data came out lower. . . But fortunately this was a one-off event, so that the January data will not be distorted by this," he said.

The IMF, however, said on Wednesday it expected global growth to pick up this year but flagged deflation as a rising risk.

"If inflation is the genie, then deflation is the ogre that must be fought decisively," IMF chief Christine Lagarde told the National Press Club in Washington.

Eurogroup president Jeroen Dijsselbloem said consumer prices were unlikely to slow further and the current low level was not a major threat to economic recovery.

The October inflation level was at a nearly four-year low and pushed the ECB towards a cut in its key lending rate to a record low of 0.25pc in November.

The monthly consumer price increase in December was led by a 0.6pc rise both in prices of services and the highly volatile energy costs.

Prices of food, alcohol and tobacco were up by 0.5pc while costs of non-energy industrial goods fell 0.3pc when compared with November.

Consumer prices in Germany, Europe's largest economy, rose 0.5pc in the month in December, but the annual inflation dropped to 1.2pc from 1.6pc in November.

Irish Independent

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