Eurozone confirms negative inflation - Driven by cheaper energy not deflation

Eurozone confirms negative inflation - Driven by cheaper energy not deflation
By Chris Giles in London
Copyright The Financial Times Limited 2009
Published: July 15 2009 12:19 | Last updated: July 15 2009 12:19
http://www.ft.com/cms/s/0/5f950aae-7129-11de-877c-00144feabdc0.html


Prices across the eurozone were lower in June than a year earlier, Eurostat, the EU’s statistical office confirmed on Wednesday, reflecting lower oil and petrol prices rather than a sustained move to deflation.

Across the eurozone, prices were 0.1 per cent lower in June than a year earlier, with the fastest drop in prices recorded in Ireland, Portugal, Spain, Belgium and Luxembourg, confirming an earlier “flash estimate” from Eurostat.

Although the European Central Bank will be concerned to see inflation falling so rapidly below its target of “below but close to 2 per cent”, it will be reassured that persistent deflation is not yet a likelihood because of a one-off fall in petrol prices affecting the overall inflation rate.

The fall in oil prices from a high of $147 a barrel last summer to around $60 a barrel in July and the knock-on effect of lower petrol prices contributed 1 percentage point to the fall in annual inflation in June. The inflation rate excluding energy stood at 1.2 per cent in June and prices across the eurozone were 0.2 per cent higher in June than in May.

The figures were in line with economists’ expectations.

The flash estimate of inflation released at the end of June had caused a stir since it showed inflation going negative for the first time since the euro was established a decade ago, but the detailed breakdown reassured economists yesterday that deflation was not stalking the European economy.

Nick Kounis of Fortis Bank said: “Our sense is that euro zone inflation is not going to be in negative territory for too long. The volatile items which drove it into negative territory - food and energy - are likely to turn around quite sharply in the coming months.”