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Eurozone falls into deflation after oil price slide

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08/01/2015
The Eurozone has slipped into deflation, prompted by lower oil prices.

The eurozone slid into deflationary territory in December for the first time in five years, according to preliminary figures released today.

Consumer Price Index (CPI) inflation in the single currency area was -0.2% in December, prompted by a 6.3% fall in energy price inflation.

The figure, which was lower than the -0.1% that had been expected by economists, represented the first time eurozone inflation has turned negative since 2009.

Core inflation, which excludes volatile measures such as food and energy prices from inflation statistics, rose to 0.8%.

The news came two days after Germany, the largest eurozone economy, announced its lowest annual rate of inflation since October 2009. German inflation fell from 0.6% in November to 0.2% in December.

The euro slid to a fresh nine-year low in anticipation of today’s figures, at $1.184, as investors interpreted the figures as putting further pressure on the European Central Bank (ECB) to begin full-blown QE.

Some observers have noted that core eurozone inflation has been below 1% for the majority of the last 18 months, suggesting that pricing problems in the eurozone go beyond the oil price crisis.

The European Central Bank targets a 2% inflation rate.

There has been rising criticism from investors over apparent inaction from the central bank.

World First chief economist Jeremy Cook said: “Although oil is a convenient scapegoat for those policymakers that believe that the weakness in prices is ‘transitory’, the lack of willingness on the part of ECB policymakers to actively engage in a scheme to help promote demand in the euro area is the ultimate harvest that has been reaped.”

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