Euro zone inflation slows in December

Thursday 16 January 2014 17.07
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Euro zone's annual inflation rate slows to 0.8% in December
Euro zone's annual inflation rate slows to 0.8% in December
Eurogroup President Jeroen Dijsselbloem says consumer prices were unlikely to slow further
Eurogroup President Jeroen Dijsselbloem says consumer prices were unlikely to slow further

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

Price pressures are weak, enough, however, to prompt concern at the International Monetary Fund about deflation.    

Consumer prices in euro zone rose 0.3% on the month, putting the annual inflation rate at 0.8%, down from 0.9% in November, but just above 0.7% in October. 

The ECB, which wants to keep inflation below but close to 2% 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 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 International Monetary Fund, however, said 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 earlier today that consumer prices were unlikely to slow further and the current low level is not a major threat to economic recovery. 

Jeroen Dijsselbloem made his comments in Beijing today where he is holding talks with Chinese leaders. 

But, Dijsselbloem, who chairs the meetings of euro zone finance ministers, said there was little danger of a downward spiral in prices.

"If you look at what we are doing in the euro zone with structural reforms, for example bringing down the costs in our economy, bringing down the costs of labour in a number of countries, the downward effect on inflation is quite normal," Dijsselbloem said.

"So there is no acute threat that it will go further," Dijsselbloem, who is the finance minister of the Netherlands, said.

Dijsselbloem was visiting China with Olli Rehn, the European commissioner in charge of economic and monetary affairs. They were expected to reassure Chinese leaders, including Minister of Finance Lou Jiwei, central bank governor Zhou Xiaochuan and Vice Premier Ma Kai, that the euro zone recovery is on sound footing.

Low inflation rate pushed ECB to cut interest rates

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

The monthly consumer price increase in December was led by a 0.6% rise both in prices of services and the highly volatile energy costs. Prices of food, alcohol and tobacco were up by 0.5% while costs of non-energy industrial goods fell 0.3% compared with November.  

Consumer prices in Ireland rose by 0.2% in December compared to the same time the previous year, while prices in Germany, Europe's largest economy, rose 0.5% on the month in December. However, the annual inflation rate dropped to 1.2% from 1.6% in November.  

The annual inflation rate in Spain stood 0.3% for the second month in a row in December after being flat in October.    Annual inflation in Portugal rose for the third consecutive month, but was still standing at just 0.2% in December. 

The fall in inflation rates is related to an overall economic adjustment and restoring of competitiveness of Europe's southern periphery countries, where growth collapsed during the crisis and triggered a massive austerity push.