23rd Sep 2023

Euro area sees record low inflation

  • Consumers benefit from lower prices but long-term deflation can harm the economy as a whole (Photo: EUobserver)

One year after the global oil and food crises, which saw skyrocketing energy and food prices, the euro area is now reporting record low inflation as a result of the overall economic downturn.

According to figures by Eurostat, the EU's statistical office, published on Friday (14 August), the 16 states using the euro saw negative annual inflation of -0.7 percent in July, down from -0.1 percent in June.

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Last summer, consumer prices rose four percent year-on-year, sparking discussions about the necessity of stabilising both oil and food prices as the two main areas boosting inflation.

But the current downturn is not only due to the high difference between this and last year's prices but chiefly as a result of the economic crisis still hindering Europe's economy.

Across the whole of the 27-strong bloc, consumer prices rose by a record low 0.2 percent compared to July 2009 (then plus 4.4 %) but fell by 0.5 percent when compare to figures for June this year.

Ireland (-2.6%), Belgium (-1.7%) and Luxembourg (-1.5%) saw the biggest slump in consumer prices, while Romanians (5%), Hungarians (4.9%) and Poles (4.5%) had to face the highest prices increases.

The price figures poured some cold water on the last week's data on Germany and France stepping out of recession. Economists warn that long-term deflationary pressure could further hamper overall economic activity by discouraging businesses to produce more and employ more workers or at least prevent lay-offs.

In the eurozone alone, the unemployment rate rose to a 10-year high to 9.4 percent in June, with 158,000 people losing their job from May to June, and some 3.17 million more people are out of work compared to June last year.

But analysts argue Europe is likely to avoid the long period of deflation seen in Japan the 1990s. "According to our last oil prices and exchange rate forecasts, eurozone inflation should have now bottomed out, but will remain negative until October," said Cedric Thellier, eurozone economist for French bank Natixis, AFP reported.

The European Central Bank (ECB), also anxious to avoid deflation, has said consumer prices were likely to fall for a few months mid-year but that price growth would resume later on.

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