Euro zone inflation drops unexpectedly in December

Tuesday 07 January 2014 18.21
Euro zone inflation stood at 0.8% in December
Euro zone inflation stood at 0.8% in December

Euro zone inflation fell surprisingly in December after a small increase in the previous month, adding to concerns about deflation and the risks to a fragile economic recovery.

Consumer inflation in the euro zone stood at 0.8% year-on-year in the last month of 2013, compared with 0.9% in November, data from the EU's statistics office Eurostat have shown.

December's reading takes inflation back to near a four-year-low of 0.7% in October.

Prices of food, alcohol and tobacco rose by 1.8% on the year in December after 1.6% growth in November, while the volatile price of energy showed no change, following a 1.1% drop in the previous month.

The October drop in inflation was the first fall below 1% since February 2010 and prompted the European Central Bank to cut its key interest rate to a new record low of 0.25% in November.

ECB President Mario Draghi said last week there were no signs of deflation or an urgent need for another rate cut, adding that it was vital to avoid a scenario where inflation gets stuck permanently below 1% and slips into a danger zone for the economy.

However, the euro zone is still far from the deflation that Japan suffered from the early 1990s.

Eurostat's separate data release showed euro zone industrial producer prices eased their decline in November to fall by 0.1% on the month after a 0.5% drop in October. This put the annual rate at -1.2%, compared with a nearly four year low of -1.3% seen in October.

The monthly drop was led by a 0.2% fall in costs of intermediate goods while prices of capital, durable, non-durable goods and energy prices were flat compared with October.

Changes in producer prices, unless absorbed by retailers, eventually translate into changes in the consumer price index.