December eurozone inflation below expectation at 0.2 per cent

The cost of goods and services in the eurozone rose by a steady 0.2 per cent year-on-year in December, according to an estimate released Tuesday, disappointing analysts' expectations of greater price increases.

Fears of deflation have dogged the 19-country European currency bloc, which has been struggling to rev up its economy after emerging from recession more than two years ago.

The inflation data remained unchanged from the previous month, according to the projection by the EU statistics agency Eurostat.

Analysts had expected prices to increase by 0.4 per cent, after the European Central Bank (ECB) ramped up its efforts last month to head off a prolonged period of deflation.

Economists fear deflation, as it can lead to reduced consumer spending amid expectations that prices will drop further, cutting into companies' profits and prompting them to cut their workforce, thus increasing unemployment.

On December 3, the ECB strengthened its 60-billion-euro-a-month (65.2-billion-dollar-a-month) monetary stimulus programme, although the Frankfurt-based bank fell short of a major new stimulus effort that had been expected by many.

Energy prices continued to fall in December, although the decline slowed to 5.9 per cent, compared to a more dramatic 7.3-per-cent drop the previous month.

The biggest year-on-year increases were seen in food, alcohol and tobacco prices, followed by the cost of services and non-energy industrial goods.

Analysts expressed concern about the persistently low inflation rate.

"Unless oil prices rise, headline inflation might even briefly dip below zero again in the summer," said Teunis Brosens of ING Bank.

"Bolder ECB policy action will ultimately be needed to bring inflation back to target," added Jennifer McKeown of the Capital Economics think tank.

But Brosens predicted that the bank would hold off any further stimulus for now, noting that it would take "really disappointing economic news to stir the ECB into further action." 

Last update: Fri, 24/06/2016 - 08:49
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