The eurozone has dropped into deflation, according to Eurostat which estimates that prices in December were -0.2% lower than a year earlier.
This is against the European Central Bank’s target of just under 2%.
Energy prices went down 6.3% compared to a year ago, driven by falling oil prices. The cost of industrial goods and food was flat while services went up 1.2%.
This is the first time the euro area has experienced deflation since 2009. At that time, the region was in the depth of the Great Depression.
The ECB will meet on January 22 to discuss whether it should increase the stimulus measures it has already adopted and, as in the UK and the US, pump more money into the economy by quantitative easing.
Many developed regions including the euro area and the UK have been performing below their inflation target of about 2% for more than a year. But while the UK's economy grew about 3% on last year in the most recent quarter, the eurozone expanded by just 0.8%.
In Germany, for example, inflation in December was just 0.1%, down from 0.5% in November.
Falling prices often indicate that consumers are purchasing less. Price cuts are designed to encourage them to buy more, especially as consumer spending forms the bulk of the eurozone’s economic output.
But when prices are going down, people often wait before they buy to see if prices will fall further. The deflationary spiral depresses demand even more.
Comments
However strong the heavyweight economies are in the EU ... its the weakest links that continuously fail it !