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| Another Worryingly Low Inflation Rate for the Euro Zone | Another Worryingly Low Inflation Rate for the Euro Zone |
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| PARIS — Consumer prices in the euro zone crept lower last month, a situation that could continue to put pressure on the European Central Bank to take action. | PARIS — Consumer prices in the euro zone crept lower last month, a situation that could continue to put pressure on the European Central Bank to take action. |
| Inflation in the 17 European Union member states that were using the euro in 2013 rose in December at annual rate of only 0.8 percent, Eurostat, the European Union statistical agency, reported on Tuesday in a first estimate that will be subject to revision in the weeks ahead. The December figure, which did not include Latvia, which adopted the euro on Jan. 1, was slightly lower than the 0.9 percent annual inflation rate for November. | |
| The European Central Bank seeks to keep price growth steady at about 2 percent. The current situation, in which the rate of inflation is falling, is known as “disinflation.” If the situation continues in this direction, Europe could face outright deflation — an economically dysfunctional condition in which prices actually decline. As long as hints of deflation remain, difficult challenges will face the E.C.B., which will hold its monthly meeting on Thursday. | The European Central Bank seeks to keep price growth steady at about 2 percent. The current situation, in which the rate of inflation is falling, is known as “disinflation.” If the situation continues in this direction, Europe could face outright deflation — an economically dysfunctional condition in which prices actually decline. As long as hints of deflation remain, difficult challenges will face the E.C.B., which will hold its monthly meeting on Thursday. |
| More worryingly, the “core” inflation rate, which strips out volatile food and energy prices, dipped to 0.7 percent — a record low since the advent of the euro currency. The core number for December was equivalent to the broader, overall figure for October that led the E.C.B. to cut its benchmark interest rate to a record low of 0.25 percent, down from 0.5 percent. | More worryingly, the “core” inflation rate, which strips out volatile food and energy prices, dipped to 0.7 percent — a record low since the advent of the euro currency. The core number for December was equivalent to the broader, overall figure for October that led the E.C.B. to cut its benchmark interest rate to a record low of 0.25 percent, down from 0.5 percent. |
| Clemente de Lucia, an economist at BNP Paribas, said Tuesday that the December consumer price data might have been affected by a change in the way Germany calculates its inflation, so another month or two might be needed to be certain of the trend. | Clemente de Lucia, an economist at BNP Paribas, said Tuesday that the December consumer price data might have been affected by a change in the way Germany calculates its inflation, so another month or two might be needed to be certain of the trend. |
| “Yet, the level of inflation remains dangerously low,” he wrote in a note. “Survey data show that the recovery is gaining some momentum. Yet its pace will remain rather low and it needs to be sustained by policy maker actions.” | “Yet, the level of inflation remains dangerously low,” he wrote in a note. “Survey data show that the recovery is gaining some momentum. Yet its pace will remain rather low and it needs to be sustained by policy maker actions.” |
| Deflation has a negative impact on economies, hurting corporate profits and leading consumers to delay purchases in anticipation of better deals in the future. It also weighs heavily on borrowers, making loan repayments more expensive in real terms — a particular danger for Europe’s already fragile financial sector. | Deflation has a negative impact on economies, hurting corporate profits and leading consumers to delay purchases in anticipation of better deals in the future. It also weighs heavily on borrowers, making loan repayments more expensive in real terms — a particular danger for Europe’s already fragile financial sector. |
| Economists do not, for the most part, expect the E.C.B. to take action when its Governing Council meets Thursday in Frankfurt. But the issue is certain to figure prominently in discussions between the bank’s president, Mario Draghi, and his colleagues. | Economists do not, for the most part, expect the E.C.B. to take action when its Governing Council meets Thursday in Frankfurt. But the issue is certain to figure prominently in discussions between the bank’s president, Mario Draghi, and his colleagues. |
| Mr. Draghi has suggested that the bank’s toolbox for addressing falling prices has not been exhausted, and includes the possibility of implementing negative interest rates — in effect, punishing commercial banks for depositing funds at the central bank. The goal of such a move would be to force banks to pump more money into the economy, in the form of lending, which could have at least a mild inflationary effect. | Mr. Draghi has suggested that the bank’s toolbox for addressing falling prices has not been exhausted, and includes the possibility of implementing negative interest rates — in effect, punishing commercial banks for depositing funds at the central bank. The goal of such a move would be to force banks to pump more money into the economy, in the form of lending, which could have at least a mild inflationary effect. |
This article has been revised to reflect the following correction: | |
| Correction: January 7, 2014 | |
An earlier version of this article erroneously included one euro zone member state among those covered by the December data on inflation. The inflation rate in Latvia, which adopted the euro Jan. 1, was not reflected in the data. |