Eurozone slips into deflation in December
Print Edition
THE eurozone slipped into deflationary territory in December for the first time since the height of the financial crisis in 2009, European Union figures showed yesterday, challenging the ECB to take action to avert a new economic crisis in Europe.
Consumer prices in the single currency area fell 0.2 percent last month, dragged down by plummeting oil prices and signaling big problems ahead with renewed crisis in debt-plagued Greece also on the horizon.
World stocks nosedived and the euro struck nine-year lows against the US dollar this week on renewed fears of a Greek exit from the eurozone if poll-leading leftists win snap elections this month in Athens.
Amid the instability, the first confirmed sign of a real fall in prices since the financial crisis could force the European Central Bank’s hand to do more to prop up the single currency.
The European Commission insisted that it was confident the eurozone could avoid slipping into a deflationary spiral, in which businesses and households delay purchases, throttling demand, triggering recession and causing companies to lay off workers.
Spokeswoman Annika Breidthardt said low inflation would “continue for the short term, but we expect it to pick up again once the economy gradually strengthens and wages rise.”
“We would like to point out the difference between deflation and temporary negative headline numbers,” she told a daily briefing.
Analysts were more pessimistic, however.
“December’s sharp drop in eurozone inflation into negative territory could herald the start of a prolonged and damaging bout of deflation in the currency union, which may in turn threaten to re-ignite the region’s debt crisis,” said Jonathan Loynes, economist of Capital Economics in London.
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