Eurozone Inflation at Four-Year Low of 0.7% after Month-on-month Fall

Inflation across the eurozone fell to 0.7% last month from 1.1% in September, the lowest level in the 17-country currency area for four years and the first time the rate was below 1% since February 2010, the European Union (EU) announced. The data follows disappointing third quarter economic growth figures for the region.

The October inflation rate for the eurozone’s biggest economies ranged from 1.2% in Germany, 0.7% in France and zero for Spain.

Although Europe is yet to experience a negative inflation rate, or a Japanese-style deflationary spiral when falling prices weaken demand, leading to wage cuts and even lower prices, consumer prices actually decreased by -0.1% between September and October. Lower fuel costs for heating and transport, as well as telecoms, helped offset rises in electricity and rent. The hard-hit eurozone economies of Ireland, Cyprus and Greece are already experiencing deflation.

The October figure tallied with an estimate by Eurostat at the end of last month, which was followed by the European Central Bank’s (ECB) surprise rate cut from 0.50% to 0.25% a week later.

According to a new ECB survey the average inflation rate for the eurozone is expected to come out at 1.4% for 2013, edging back up to 1.5% next year and 1.6% in 2015.

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