Eurozone's first fall in prices for five years raises deflation fears

AFP , Wednesday 7 Jan 2015

Eurozone consumer prices fell 0.2 percent in December, entering negative territory for the first time since financial crisis in October 2009 and raising fears of deflation, EU data showed Wednesday.

The drop was brought on by plummeting oil prices and will heap pressure on the European Central Bank to take bold action to stimulate price rises in the now 19-nation single currency zone.

It is the first concrete sign of much-feared deflation, or long-term falling prices, in the eurozone. Deflation is officially defined by prices falling over a longer period.

Falling prices may sound good for the consumer. But from a central bank's point of view, they can trigger a vicious spiral where businesses and households delay purchases, throttling demand, triggering recession and causing companies to lay off workers.

Deflation also increases the burden of long-term debt.

The European Union's data agency Eurostat also reported that unemployment remained at 11.5 percent in November, unchanged from October.

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, hit by a high supply by OPEC and weak demand.

All other sectors were stable, with prices in the food and beverage sector as well as industrial goods unchanged, but still well below the ECB target of a near 2 percent increase.

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