Brussels, 07/01/2015 (Agence Europe) - The annual increase in prices was negative (-0.3%) in the eurozone in December, down sharply compared to November (+0.3%), according to a flash estimate published by the statistical office of the EU (Eurostat), on Wednesday 7 January.
This negative rate, the first since October 2009, can be imputed to the fall in energy prices (-6.3%, compared to -2.6% in November), whilst prices remain stable for food, alcoholic drinks and tobacco (0.0%, compared to 0.5% in November) and non-energy industrial goods (0.0%, compared to -0.1% in November). The only annual increase anticipated is in services (1.2%, stable compared to November).
When asked about this, the European Commission stressed the difference between inflation dropping into negative figures for a short period and the phenomenon of deflation, which is defined as a general, ongoing and self-sustaining drop in prices. There is a “difference between deflation and temporary negative inflation”, a spokesperson to the institution explained. On the basis of the Commission's autumn economic forecasts, she added that inflation is expected to continue to be weak in the short term, before heading slowly back upwards. The Commission predicts that average inflation in the euro area will be 0.5% in 2014 and 0.8% in 2015.
This temporary negative inflation has cranked up the pressure on the governing council of the ECB, which has asked its staff to speed up work on new unconventional measures (European-style 'quantitative easing') in the event that the measures already taken (floor rate, buy-back of ABS shares and covered bonds) fail to keep the medium-term trajectory of inflation at a level in line with the ECB's mission, in other words inflation less than but close to 2% (see EUROPE 11211). This share buy-back scheme may be announced on Thursday 22 January and will include the buy-back of sovereign bonds of countries in difficulty. (MB)