Eurozone slips into deflation

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The eurozone annual inflation is expected to be -0.2% in December 2014, down from 0.3% in November, according to a flash estimate from Eurostat, the statistical office of the European Union.

According to the statistical office, the negative rate for euro area annual inflation in December is driven by a fall in energy prices (-6.3%, compared with -2.6% in November), while prices remain stable for food, alcohol & tobacco (0.0%, compared with 0.5% in November) and non-energy industrial goods (0.0%, compared with -0.1% in November).

The only annual increase is expected for services (1.2%, stable compared with November).

This level of inflation is the lowest since 2009, like that of the Brent crude oil  price which has fallen below $50 a barrel for the first time since May 2009.

Although economists have been reacting with different views, many of them, while pointing at the drop of oil price first, argue that the causes of the negative inflation level are broader.

As the Guardian reports, Jeremy Cook, chief economist at the international payments company, World First, points the finger against the ECB too.

“You will only need one guess as to what represents the biggest nail in the European inflationary coffin. A 6.3% fall in oil price inflation in the year to December has put year-on-year prices into negative territory for the first time since 2009 in the Eurozone.

“Although oil is a convenient scapegoat for those policymakers that believe that the weakness in prices is ‘transitory’, the lack of willingness on the part of ECB policymakers to actively engage in a scheme to help promote demand in the euro area is the ultimate harvest that has been reaped.

“This has not increased the chances of a European Central Bank QE scheme; that much has already been made clear to be on its way in my opinion. What today’s number has done is show the alarming lack of foresight that the ECB has exercised once again, and how close to the fire the European economy remains.”

The news of negative inflation levels is largely thought to put further pressure on the ECB to start its QE programme. The attention will now be focussed on the central bank’s meeting of next 22 January.

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