Thursday

17th Aug 2017

Eurozone edges out of deflation

  • Prices were flat in April, ending four months of deflation across the eurozone (Photo: Jan Willem van Wessel)

The eurozone edged out of a four-month period of deflation in April, according to the EU’s statistical agency.

An estimate by Eurostat released on Thursday (30 April) found that consumer prices were flat in April 2015, up from -0.1% in March. Prices had fallen for four consecutive months since December.

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Although energy prices continue to be the main drag on prices, following a further 5.8 percent in April, on the back of the continued low oil price, services and food were both up - services by 0.9 percent.

Although the rebound in prices is far from complete, the deflationary spiral appears to have ended ahead of expectations.

In the European Commission’s Winter Economic forecasts, published in February, Economics commissioner Pierre Moscovici predicted that prices would not start to increase until the second half of 2015.

A number of policy-makers had expressed fears that extremely low inflation in the eurozone could result in the kind of falling prices that have dogged Japan’s economy for two decades.

The news also serves as early vindication for the European Central Bank, whose €1.1 trillion bond-buying programme was intended, in part, to boost prices.

At the announcement of the programme in January, ECB president Mario Draghi said that it would remain in place “until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2%”.

In its monthly economic bulletin published on Thursday, the ECB stated that inflation would remain low for several months before gradually increasing.

“The gradual increase should be supported by the favourable impact of the ECB’s monetary policy measures on aggregate demand, the impact of the lower euro exchange rate and the assumption embedded in futures markets of somewhat higher oil prices in the years ahead,” the bank stated.

Meanwhile, household income and spending per capita edged up by 0.1 percent in the fourth quarter of 2014.

Analysis

Deflation in Europe: curse, ogre or benign?

The eurozone economy has never experienced a protracted period of deflation. That is what is facing it now. The question is whether it matters.

Opinion

The ECB must act now to prevent deflation

If the ECB continues to sit on its hands over monetary policy and politicians in Brussels continue to believe neo-liberal dogma about self regulating markets and automatic stabilisers, expect things to get far, far worse, fears George Irvin.

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