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Euro-Area Inflation Slows to 0.8% as Economy Strains to Grow

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Euro Price Signs Sit on Clothing Rails in a Store in Berlin
Ten euro price signs sit on clothing rails in a women's clothing fashion store in Berlin. The Euro-area core inflation rate declined to 0.7 percent in December from 0.9 percent. Photographer: Krisztian Bocsi/Bloomberg

Jan. 7 (Bloomberg) -- Euro-area inflation slowed in December, retreating farther from the European Central Bank’s ceiling as the 18-nation currency bloc struggled to strengthen its recovery from a record-long recession.

The annual rate dipped to 0.8 percent from 0.9 percent in November, the European Union’s statistics office in Luxembourg said in a preliminary estimate today. That’s in line with the median forecast in a Bloomberg News survey of 31 economists. The rate has been below the ECB’s 2 percent ceiling for 11 months, and sank to a four-year low of 0.7 percent in October.

“Today’s figures show that it’s too early for the ECB to become complacent about deflation risks, especially in peripheral countries,” Peter Vanden Houte, an economist at ING Bank NV in Brussels, said by e-mail. “While we believe that for the time being the ECB will keep its monetary policy unchanged, not much is needed to push the central bank into action.”

The ECB, which lowered its benchmark rate to 0.25 percent in November, sees a “subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy and subdued monetary dynamics,” according to its monthly bulletin published on Dec. 12. The Frankfurt-based central bank will leave its main refinancing rate unchanged on Jan. 9, according to a separate Bloomberg survey.

Energy Prices

The euro erased losses against the dollar after the inflation data were released, trading at $1.3647 at 12:07 p.m. in Brussels, up 0.1 percent on the day. The Stoxx Europe 600 Index was up 0.4 percent at 328.41.

Energy prices stagnated in December after a 1.1 percent fall the previous month, today’s data showed. Prices of alcohol, food and tobacco climbed 1.8 percent, following a 1.6 percent rise in November. The cost of services increased 1 percent after a 1.4 percent jump.

ECB President Mario Draghi sees “no immediate need to act” on the ECB’s key rates, Der Spiegel reported on Dec. 28, citing an interview. “The crisis isn’t over, but there are many encouraging signs,” he said, adding that he sees no signs of deflation in Europe.

“While the ECB remains adamant that deflation across the euro zone is not a serious risk, it will undoubtedly be uncomfortable with this latest dip in consumer price inflation,” said Howard Archer, chief European and U.K. economist at IHS Global Insight in London. “The ECB would certainly like to see inflation back above 1 percent sooner rather than later.”

The core inflation rate declined to 0.7 percent in December from 0.9 percent. Economists had forecast a drop to 0.8 percent.

Today’s inflation data are estimates. The statistics office will release final figures for December on Jan. 16.

Separate data today showed November euro-area industrial producer prices fell 0.1 percent in the month and 1.2 percent in the year.

To contact the reporter on this story: Ian Wishart in Brussels at iwishart@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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