The eurozone slipped into deflationary territory for the first time since 2009 after prices
dropped in December, challenging the European Central Bank (ECB) to take action to prop
up the single European currency and avert a new debt crisis in Europe. The fall in eurozone consumer prices, attributed to plunging oil prices, is the first sign of deflation hitting the 19 nation currency zone. The last time consumer prices fell in October 2009 was at the height of the global financial crisis.
Inflation in the single currency area was at minus 0.2 percent last month, dragged down
by plummeting oil prices and signalling big problems ahead with renewed crisis in debt-plagued Greece also on the horizon. World stocks nosedived and the euro struck nine-year lows against the dollar this week on renewed fears of a Greek exit from the eurozone if poll-leading leftists win snap elections this month in Athens.
The last time consumer prices fell in October 2009 was at the height of the global financial crisis.
Amid the instability, the first confirmed sign of a fall in consumer prices since the last crisis could force the European Central Bank to act more boldly to prop up the single currency.
The European Commission insisted Wednesday that temporary negative prices were
different from true long-term deflation with a deflationary spiral in which businesses
and households delay purchases, throttling demand,triggering recession and causing
companies to lay off workers. However, the usually cautious ECB has already cut interest rates to all-time lows but is now considering the possibility of large-scale purchases of sovereign debt, so-called "quantitative easing" or QE.
Low oil prices
Energy prices in the eurozone, which added Lithuania on January 1, sank a huge 6.3 percent in December, greater than a fall of 2.6 percent a month earlier, when inflation was a still positive 0.3 percent. Oil prices have plummeted in recent weeks, as OPEC maintains its production levels despite weak demand. All other sectors were stable, with prices in the food and beverage sector as well as industrial goods unchanged.
The eurozone slipped into deflationary territory for the first time since 2009 after prices
dropped in December, challenging the European Central Bank (ECB) to take action to prop
up the single European currency and avert a new debt crisis in Europe. The fall in eurozone consumer prices, attributed to plunging oil prices, is the first sign of deflation hitting the 19 nation currency zone. The last time consumer prices fell in October 2009 was at the height of the global financial crisis.
Inflation in the single currency area was at minus 0.2 percent last month, dragged down
by plummeting oil prices and signalling big problems ahead with renewed crisis in debt-plagued Greece also on the horizon. World stocks nosedived and the euro struck nine-year lows against the dollar this week on renewed fears of a Greek exit from the eurozone if poll-leading leftists win snap elections this month in Athens.
The last time consumer prices fell in October 2009 was at the height of the global financial crisis.
Amid the instability, the first confirmed sign of a fall in consumer prices since the last crisis could force the European Central Bank to act more boldly to prop up the single currency.
The European Commission insisted Wednesday that temporary negative prices were
different from true long-term deflation with a deflationary spiral in which businesses
and households delay purchases, throttling demand,triggering recession and causing
companies to lay off workers. However, the usually cautious ECB has already cut interest rates to all-time lows but is now considering the possibility of large-scale purchases of sovereign debt, so-called "quantitative easing" or QE.
Low oil prices
Energy prices in the eurozone, which added Lithuania on January 1, sank a huge 6.3 percent in December, greater than a fall of 2.6 percent a month earlier, when inflation was a still positive 0.3 percent. Oil prices have plummeted in recent weeks, as OPEC maintains its production levels despite weak demand. All other sectors were stable, with prices in the food and beverage sector as well as industrial goods unchanged.
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