Following months of speculation that the eurozone could soon take a trip into negative territory, Eurostat figures for December show consumer prices were down 0.2 percent from what they were at the same point last year. With an inflation target of close to two percent, the ECB has fallen far short of its ambitions, and many expect that the announcement will pile pressure on the bank to take immediate action and stave off the threat of a deflationary spiral.
The ECB has fallen far short of its ambitions
Still, the figure is only a flash estimate, and the EU’s statistical office will review the numbers in a month’s time when more data is available. “This negative rate for euro area annual inflation in December is driven by a fall in energy prices (-6.3 percent, compared with -2.6 percent in November), while prices remain stable for food, alcohol and tobacco (0 percent, compared with 0.5 percent in November) and non-energy industrial goods (0.0 percent, compared with -0.1 percent in November). The only annual increase is expected for services (1.2 percent, stable compared with November),” according to a Eurostat news release.
The price of oil came in at less than $50 for the first time since 2009 on December 7, and, according to Eurostat’s findings, slumping energy prices are by far the biggest factor dragging consumer prices into the red. Without factoring energy prices into the mix, eurozone inflation would’ve come to 0.6, significantly more than the flash estimate, though still short of the ECB’s two percent target.
The revelation that the eurozone has slipped into deflation will compound the already-mounting pressure on the ECB to introduce a QE-like programme of its own, and many expect the bank to do just that at its next meeting on January 22.
The bank has been flirting with the prospect of sovereign bond purchases for some time now, but has been tentative to do so in the face of strong opposition from Germany. The news that Germany’s annual inflation rate came to only 0.1 percent in December, coupled with eurozone deflation, could force the ECB’s hand in the weeks ahead.
