Deflation Hits the Eurozone

January 7th, 2015
in econ_news

Econintersect:  The CPI (Consumer Price Index) for the 18 Eurozone countries registered a year-over-year decline of 0.2% in December.  This was even lower than the -0.1% estimated by Reuters.  The only previous deflationary period for the Eurozone occurred in 2009 during the Great Recession.  At that time there were four months of deflation, the biggest decline being -0.7%.  The current report is the preliminary "flash"report and is subject to revision with a more detailed report due next week (16 January 2015).

eurostat-logo

Follow up:

The data was driven by falling energy prices.  The "core" inflation (omitting energy, food, alcohol and tobacco) was a year-over-year inflation rate of 0.8%.  Here are the summary numbers from eurostat:

eurozone-cpi-flash-2014-dec

It is likely that the ECB may be moved by this new data to a more aggressive monetary stance which could include QE (quantitative easing) with the purchase by the bank of country debt of the members of the eurozone.  This has been opposed by Germany.  It remains to be seen if the new data will produce any change in the German position.  There may be no final reaction until 16 January when the final data is released.

The following graphs from Trading Economics show data for 2014 and 2009 as well as the seven year period 2008-2014.

eurozone-cpi-2014-year

eurozone-cpi-2009-year

eurozone-cpi-2009-2014

Sources:









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