Pace of Deflation Accelerates in Europe

Falling oil prices has accelerated the move into deflation across the eurozone countries, with prices in January showing a year-on-year (YoY) drop of -0.6% according to Eurostat, the European Commission’s (EC) statistics bureau.

The figure across the 18 countries to have adopted the single European currency matches the record low previously recorded in July 2009 during the region’s sovereign debt crisis. It compares with a figure of -0.2% recorded in December.

The move deeper into deflation reflected an 8.9% drop in energy prices in January, with the cost of oil now 60% lower than last summer.

After stripping out both energy and food costs from the calculations, eurozone prices showed a 0.5% rise YoY this month against 0.7% in December.

European Central Bank (ECB) president Mario Draghi is likely to see the latest data as justifying the Bank’s announcement on January 22 that it would launch a programme of quantitative easing (QE) intended to push inflation closer to the ECB’s 2% target.

The eurozone figures came a day after Germany reported it had slipped into deflation this month, with prices declined by -0.3% YoY.

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