Eurozone deflation fears rise as jobless figures steady

BRUSSELS, Jan 31 (AFP): Eurozone inflation slowed further in January while unemployment stayed at near record levels, adding pressure on the ECB to act to prevent the bloc slipping into deflation, analysts said on Friday.
Inflation in the 18-nation euro area, still struggling to recover from its debt crisis, slowed to 0.7 percent in January from 0.8 percent in December, according to the EU's statistics agency Eurostat.
The figure is far below the European Central Bank's target of just below 2.0 percent and will be high on the agenda when the ECB's chiefs meet next week.
Unemployment meanwhile stayed at 12.0 percent in December, unchanged since October, with about 19.10 million jobless.
Eurostat said the fall in the inflation rate was largely due to energy prices plunging 1.2 percent in January against 0.0 percent for December.
International Monetary Fund head Christine Lagarde warned earlier this month that while growth in the global economy was picking up, there were "rising risks" of the "ogre" of deflation, or falling prices.
Tough EU government austerity policies to combat the debt crisis have sucked demand out of the economy, pushing the rate of price rises way below the ECB's target.
"The latest eurozone unemployment and inflation data maintained the pressure on the ECB to do more to ward off deflation risks, perhaps as soon as next week," said Jonathan Loynes of Capital Economics.
Tom Rogers, of EY Eurozone Forecast, agreed.
"The slight drop in inflation this month further proves it is too early for complacency regarding the risks of deflation in the region, providing a continued headache for the ECB ahead of the next meeting on Thursday, with markets eager to see a positive response from the Governing Council," he said.
Eurozone inflation has dropped from 2.0 percent in January 2013 after falling steadily in recent months.
In January, the rise of food, alcohol and tobacco products fell to 1.7 percent against 1.8 percent the previous month.
That was followed by services for which prices rose by 1.1 percent against 1.0 in December and industrial goods to 0.2 percent against 0.3 percent.
Deflation-falling prices in real terms-can encourage consumers to put off buying goods in the expectation that if they wait, they will become cheaper.
That in turn weakens the economy as companies reduce output accordingly, hitting employment and demand, setting off a downward spiral.
Unemployment meanwhile remained steady but high.
Eurozone joblessness hit a record 12.1 percent in September but with the December figure of 12.0 it was stable for the whole of the final quarter of 2013.
The figure of 19.10 million was down 129,000 from November 2013 but up 130,000 from December 2012 when the debt crisis was at its peak, Eurostat said.
Howard Archer of IHS Global Insight said the unemployment figures showed eurozone labour markets had "stabilised" after a long period of weakness.
"Even so, the eurozone jobs problem is far from over as the unemployment rate remains damagingly high at 12.0 percent," he said.