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Eurozone Inflation Falls to Lowest Level Since 2009 Eurozone Inflation Falls to Lowest Level Since 2009
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FRANKFURT — Inflation in the eurozone has fallen to its lowest level since 2009, according to official data released on Friday, while unemployment remains in the double digits, reinforcing fears of deflation, a sustained drop in prices that could lead to higher joblessness and slumping growth. FRANKFURT — Consumer prices in the 19-country eurozone fell for a second consecutive month in January, while unemployment remained in double digits, according to an official estimate released on Friday.
Consumer prices in the 19 countries of the eurozone fell 0.6 percent in January compared with a year ago, after dipping into negative territory in December, according to a preliminary estimate by Eurostat, the European Union statistics bureau. Together, the data reinforce fears that the region could lapse into a sustained period of falling prices that could lead to an even higher jobless rate and economic stagnation.
The unemployment rate dipped to 11.4 percent in December, after coming in at 11.5 percent in November, Eurostat said. Economists had expected the rate to stay at 11.5 percent. The reports are likely to be seen as validation of the decision last week by the European Central Bank to begin big purchases of government bonds and other debt, in an attempt to pump cash into the economy and raise inflation closer to the official target of close to 2 percent.
Analysts had forecast a 0.5 percent drop in consumer prices for January, though some revised their forecasts downward after data published on Thursday showed a larger than expected fall in prices in Germany, the eurozone’s largest economy. Consumer prices in Germany fell 0.3 percent in January, according to an official estimate. A nearly 9 percent drop in the oil prices and other energy costs accounted for most of the decline.
The second consecutive month of declining prices in the eurozone will be seen as validation of the decision last week by the European Central Bank to begin buying 1.1 trillion euros, or about $1.24 trillion, of government bonds and other debt, in an attempt to pump cash into the economy and raise inflation closer to the official target of close to 2 percent. Most alarming for some economists, though, was a historic low in the so-called core inflation rate — an underlying measurement that does not count things like energy, food, alcohol and tobacco, whose prices often fluctuate greatly from month to month.
Although prices as measured by core inflation did not actually fall, the inflation rate dipped in January to a level that economists consider worrisomely low — falling to 0.6 percent, from 0.7 percent in December. It was the lowest core inflation rate since the euro was introduced in 1999.
“The real cause for concern lies in the slowdown in core inflation, and in services prices,” Tom Rogers, an economist who advises the consulting firm Ernst & Young, said in an email.
The continuing concern for the eurozone is that dangerously low inflation will give way to outright deflation — a sustained period of falling prices that can undermine the economy and be hard to escape once it sets in.
“The relative stability in these parts of the overall index over the past year or so has offered room to remain optimistic that weaker inflation would not lead toward outright deflation,” Mr. Rogers said, referring to the core inflation rate. “This is no longer the case.”
Taken by itself, the unemployment rate provided a glimmer of good news, dipping to 11.4 percent in December after coming in at 11.5 percent in November, according to Eurostat, the statistics agency for the European Union. Economists had expected the rate to stay at 11.5 percent.
The jobless rate was the lowest in the eurozone since August 2012, and declined in many of the eurozone’s hardest-hit countries, including Italy and Greece.
The number of jobless people in the eurozone fell 157,000, to a total of 18.1 million. In all 28 countries in the European Union, the unemployment fell to 9.9 percent from 10 percent, the first time it was in single digits since October 2011.
But unemployment remained at catastrophic levels in many countries. The rate in Spain, for example, barely budged — at 23.7 percent in December, compared with 23.8 percent in November.
Consumer prices in the eurozone fell 0.6 percent in January — a slightly bigger drop than the 0.5 percent analysts had forecast.
But some analysts had revised their forecasts downward after data published on Thursday showed a larger-than-expected fall in prices in Germany, the eurozone’s largest economy. Consumer prices in Germany fell 0.3 percent in January, according to an official estimate.
The second consecutive month of declining prices in the eurozone, after they fell 0.2 percent in December, supports the European Central Bank’s plan announced last week to buy government bonds in an attempt to pump cash into the economy.
“Today’s inflation numbers fully vindicate the E.C.B.’s decision to embark on Q.E.,” Teunis Brosens, an analyst at ING Bank, said in a note to clients, referring to quantitative easing, as the bond-buying program is known.
The data will also support the arguments of economists who say that the eurozone is already in deflation, a condition in which consumers delay purchases because they expect prices to fall further. When consumer spending falls, companies earn less revenue and face pressure to dismiss workers or cut wages, creating a vicious circle of declining economic activity.The data will also support the arguments of economists who say that the eurozone is already in deflation, a condition in which consumers delay purchases because they expect prices to fall further. When consumer spending falls, companies earn less revenue and face pressure to dismiss workers or cut wages, creating a vicious circle of declining economic activity.
Other economists argue that the decline in prices is a temporary phenomenon linked to the steep fall in oil prices, and is no cause for alarm. Some even say that modest deflation is good, because it increases consumer-spending power.Other economists argue that the decline in prices is a temporary phenomenon linked to the steep fall in oil prices, and is no cause for alarm. Some even say that modest deflation is good, because it increases consumer-spending power.
Inflation in the eurozone was also negative for five months in 2009, reaching a low of minus 0.6 percent in July of that year. But inflation rose again quickly as the eurozone began to recover from the sharp downturn that followed the financial crisis. “The slump of oil prices is a blessing for the sluggish economy in the eurozone,” Christoph Weil, an economist at Commerzbank in Frankfurt, said in a note to clients. “Consumers have to pay less for energy and have more money to spend on other things.”
The latest bout of falling prices comes after six years of weak growth, and many economists are pessimistic about the chances for a quick recovery. Countries including France and Italy have not made the changes needed to improve economic performance, many say, such as revising labor laws or streamlining approval procedures for businesses. Consumer prices in the eurozone fell for five months in 2009, during the global financial crisis, reaching a low of minus 0.6 percent in July of that year. But inflation returned and rose again quickly as the eurozone began to recover from the sharp downturn.
In addition, countries that have healthy government budgets, like Germany, have been reluctant to spend more on public works to help stimulate growth. But the current bout of falling prices comes after six years of only weak growth, and many economists are pessimistic about the chances for a quick recovery. Countries including France and Italy have not made the changes needed to improve economic performance, many say, such as revising labor laws or streamlining approval procedures for businesses.
In addition, countries that have healthy government budgets, like Germany, have been reluctant to spend more on public works to stimulate growth. Germany’s unemployment rate, at 4.8 percent in December, was the lowest in the eurozone.
The unemployment rate also fell in Italy, to 12.9 percent from 13.3 percent. But the rate in France was unchanged at 10.3 percent. The two countries have faced criticism for failing to make changes in labor laws that would encourage hiring.
Many economists argue that the central bank stimulus, which will involve buying €60 billion in eurozone assets each month starting in March, will be of little use unless eurozone governments do their part by creating conditions for better job creation.Many economists argue that the central bank stimulus, which will involve buying €60 billion in eurozone assets each month starting in March, will be of little use unless eurozone governments do their part by creating conditions for better job creation.