Flash Estimate, December 2014 – Euro area annual inflation down to -0.2%

Euro area annual inflation was expected to be -0.2% in December 2014, down from 0.3% in November, according to a flash estimate from Eurostat, the statistical office of the European Union, released on 7 January 2015.

This negative rate for euro area annual inflation in December was driven by a fall in energy prices (-6.3%, compared with -2.6% in November), while prices remained stable for food, alcohol & tobacco (0.0%, compared with 0.5% in November) and non-energy industrial goods (0.0%, compared with -0.1% in November). The only annual increase was expected for services (1.2%, stable compared with November).

In the LSE EuroppBlog on the 13 January 2015 the question is asked 'But should we be concerned about deflation?' As Gerhard Illing noted, some economists have made the case that falling prices could have positive consequences, with the recent fall in oil prices in particular constituting a positive supply shock. He argues however that there are very real risks associated with persistent low inflation and that a complacent policy response could set the Eurozone on a path toward long term stagnation.

• Primary Source

BBC News, 07.01.15: Deflation hits eurozone as energy prices fall http://www.bbc.co.uk/news/business-30707644

The Guardian, 07.01.15: Eurozone deflation puts pressure on ECB to launch QE stimulus http://www.theguardian.com/business/2015/jan/07/eurozone-deflation-pressure-ecb-qe

ESO: Background information: Euro touches a nine-year low against US dollar http://www.europeansources.info/record/euro-touches-a-nine-year-low-against-us-dollar/

The New York Times, 07.01.15: Prices Fall and Worry Escalates in the Eurozone http://www.nytimes.com/2015/01/08/business/international/europe-economy-deflation.html?_r=0

EUObserver, 07.01.15: Plunging oil prices drive eurozone into deflation http://euobserver.com/news/127119

EUObserver, 14.01.15: Eurozone in danger of permanent stagnation, World Bank says https://euobserver.com/news/127203

Blog: LSE EuroppBlog, 13.01.15: Europe’s political leaders cannot afford to be complacent about deflation in the Eurozone http://bit.ly/1y9ydQ2

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