Inflation in the Eurozone dipped in December, despite various measures taken by the European Central Bank to stimulate growth in the economy, raising some concerns about deflation in the region.
According to data released by Eurostat, CPI fell to 0.8% in December from 0.9% in November. This headline inflation rate was in line with expectations but it should be noted that today’s number is a preliminary estimate and the final reading will be released on January 16.
Contributing to the decline in the inflation rate was due to a fall in the prices of food, alcohol, tobacco, and services in December. Energy prices were stagnant.
The core inflation rate also fell, down to 0.7% in December from 0.9% in November, missing expectations for a drop to 0.8%.
The headline inflation rate remains below the ECB’s target rate of 2% but today’s figure is still above October’s near 4-year low of 0.7%, which triggered the central bank to cut its benchmark interest rate to a record low 0.25% in November. The ECB holds its monthly policy meeting on Thursday but there are hardly any expectations for a rate cut at this time.
This expectation is supported by ECB President Mario Draghi’s comments in late December when he said he sees “no immediate need to act” on the ECB’s key rates. In an interview with German newspaper Der Spiegel reported on December 28, Draghi was cited as saying :
“The crisis isn’t over, but there are many encouraging signs,” he said, adding that he sees no signs of deflation in Europe.
However it would be reasonable to say that if inflation remains below 1% it would bring deflationary risks into play and could prompt the ECB to take action.
For the moment, the current expectation of no rate cut by the ECB this week is helping support the euro.
The market shrugged off today’s soft data and the euro rose to reach a high of 1.3650 within an hour of the CPI release, off pre-data lows of 1.3612.
Inflation in the Eurozone dipped in December, despite various measures taken by the European Central Bank to stimulate growth in the economy, raising some concerns about deflation in the region.
According to data released by Eurostat, CPI fell to 0.8% in December from 0.9% in November. This headline inflation rate was in line with expectations but it should be noted that today’s number is a preliminary estimate and the final reading will be released on January 16.
Contributing to the decline in the inflation rate was due to a fall in the prices of food, alcohol, tobacco, and services in December. Energy prices were stagnant.
The core inflation rate also fell, down to 0.7% in December from 0.9% in November, missing expectations for a drop to 0.8%.
The headline inflation rate remains below the ECB’s target rate of 2% but today’s figure is still above October’s near 4-year low of 0.7%, which triggered the central bank to cut its benchmark interest rate to a record low 0.25% in November. The ECB holds its monthly policy meeting on Thursday but there are hardly any expectations for a rate cut at this time.
This expectation is supported by ECB President Mario Draghi’s comments in late December when he said he sees “no immediate need to act” on the ECB’s key rates. In an interview with German newspaper Der Spiegel reported on December 28, Draghi was cited as saying :
“The crisis isn’t over, but there are many encouraging signs,” he said, adding that he sees no signs of deflation in Europe.
However it would be reasonable to say that if inflation remains below 1% it would bring deflationary risks into play and could prompt the ECB to take action.
For the moment, the current expectation of no rate cut by the ECB this week is helping support the euro.
The market shrugged off today’s soft data and the euro rose to reach a high of 1.3650 within an hour of the CPI release, off pre-data lows of 1.3612.
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