Eurozone edges out of deflation but the threat of falling prices still looms

30th April 2015


The Eurozone has managed to pull itself out of deflation with consumer price inflation rising from March’s -0.1% to 0% in April, according to a flash estimate from Eurostat, the statistical office of the European Union (UN).

But while the recent bout of falling prices in the currency bloc has eased, the threat of deflation in the region has not lifted altogether experts have warned.

Research hub Capital Economics highlighted that the rise was caused by a further slight fading of negative energy effects and a pick-up in food inflation.

Core inflation held steady at a record low of +0.6%, with a small rise in core goods inflation offset by a slowdown in services inflation – the biggest component of the overall CPI – to 0.9%, an all-time low.

Jonathan Loynes, chief European economist at the group believes as such it is too early to conclude that the threat of deflation has lifted altogether.

He said: “Aside from the possibility that oil prices drop back again, the continued pass-through of falls in production costs could pull core goods inflation lower over the coming months. Meanwhile, services inflation could ease further in response to the general slack in the economy and labour market.”

That slack, he noted was underlined by the March labour market figures showing the unemployment rate stuck at 11.3% for the third successive month.

“While the trend in unemployment still appears to be downwards, it is too slow to prompt any meaningful pick-up in wage pressures in the foreseeable future,” he added.

“In short, it is of some relief that the bout of technical deflation has been shorter lived than we had feared. But it could yet return if oil and other commodity prices fall again and even continued low inflation will further hinder the indebted peripheral countries’ fiscal consolidation efforts.”

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