Sunday 21 January 2018

Euro zone ends deflation as price change rises to zero

Mario Draghi
Mario Draghi

The euro zone ended four months of deflation in April with consumer prices unchanged from year-ago levels, indicating the risk of persistent price declines is abating.

Consumer prices in the 19 countries that share the euro were unchanged in April from a year earlier, as expected, after a 0.1 percent decline in March, the European Union's statistics office Eurostat estimated.

The bottoming out of price declines is likely to be welcome news for the European Central Bank, which wants to keep inflation below, but close to 2 percent over the medium term. It started printing money in March to inject more cash into the economy and ward off concerns of persistently falling prices, or deflation.

Economists have said inflation should become clearly positive in the second half of 2015 as energy becomes less of a drag given that oil prices started falling sharply from June last year.

Indeed some say the market may start questioning whether the ECB will need to carry out quantitative easing all the way through to September 2016.

As in previous months, the weakness of prices was mainly driven by the declining cost of energy, which was 5.8 percent cheaper in April than a year earlier.

Core inflation, which excludes volatile energy and unprocessed food costs, was unchanged at 0.6 percent year-on-year.

Eurostat's flash estimate for the month does not include a monthly calculation.

In another slightly positive sign for the euro zone economy, Eurostat said euro zone unemployment fell marginally in March by 36,000 to 18.105 million people.

However, this was not enough to change the unemployment rate from the 11.3 percent of February. Economists had been expecting the rate to drop to a new three-year low of 11.2 percent.


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