Record fall in eurozone consumer prices: EU
Sunday, 16 August 2009
BRUSSELS, Aug 15 (AFP): Consumer prices in the 16 euro countries fell a record 0.7 per cent in July over 12 months, deepening the bloc's first ever dip into deflationary territory, EU data showed yesterday.
The figures poured some economic cold water on data released Thursday that showed Germany and France had emerged from recession in the second quarter, underlining the obstacles ahead towards a recovery.
The 0.7 per cent eurozone price drop and the 0.1 per cent fall seen in June mark the first-ever foray into negative inflation since the euro bloc was formed in 1999 and a remarkable U-turn for Europe's economy.
The news partly accounted for a weakening of the euro against the dollar and a general fall in European stock prices, traders said.
After hitting a record high of 4.0 per cent in June and July 2008, eurozone inflation has fallen sharply as oil and other commodity prices have collapsed in the face of the global economic downturn.
The negative figures published on Friday are mainly due to the high energy and food prices seen last July, a European Commission spokesman said.
"The energy and food prices were very high in July last year compared to July this year," he said.
Most economists expected that eurozone inflation would dip briefly into negative territory but they have ruled out a longer downward spiral in prices like the one during Japan's "lost decade" in the 1990s.
While the prospect of falling prices may delight consumers it can wreak havoc on the broader economy as households put off purchases hoping for future bargains, undermining demand and in turn investment in new production.
That then puts further pressure on employment, causing further falls in demand and so setting up a dangerous vicious circle which can potentially cripple an economy.
"According to our last oil prices and exchange rate forecasts, eurozone inflation should have now bottomed out but would remain negative until October," said Cedric Thellier, eurozone economist for French bank Natixis.
Prices fluctuated widely among eurozone nations, from consumer price rises of 0.7 per cent in Greece and 0.8 per cent in Malta to an annual fall of 2.6 per cent in Ireland, which was the first eurozone country to enter recession.
While prices still edged upwards in July in the 27-nation EU as a whole, the 0.2 per cent inflation rate was itself a record low.
Official figures released Thursday had offered hopes that there are at least some green shoots of economic recovery.
The eurozone economy contracted by just 0.1 per cent in the second quarter, as Germany and France unexpectedly emerged from recession, both registering 0.3 per cent GDP growth, the figures showed.
Those estimates fuelled hopes that the eurozone's biggest hitters can pull the others out of the worst recession the region has known since 1945, although analysts said the data should be treated with caution.
The figures poured some economic cold water on data released Thursday that showed Germany and France had emerged from recession in the second quarter, underlining the obstacles ahead towards a recovery.
The 0.7 per cent eurozone price drop and the 0.1 per cent fall seen in June mark the first-ever foray into negative inflation since the euro bloc was formed in 1999 and a remarkable U-turn for Europe's economy.
The news partly accounted for a weakening of the euro against the dollar and a general fall in European stock prices, traders said.
After hitting a record high of 4.0 per cent in June and July 2008, eurozone inflation has fallen sharply as oil and other commodity prices have collapsed in the face of the global economic downturn.
The negative figures published on Friday are mainly due to the high energy and food prices seen last July, a European Commission spokesman said.
"The energy and food prices were very high in July last year compared to July this year," he said.
Most economists expected that eurozone inflation would dip briefly into negative territory but they have ruled out a longer downward spiral in prices like the one during Japan's "lost decade" in the 1990s.
While the prospect of falling prices may delight consumers it can wreak havoc on the broader economy as households put off purchases hoping for future bargains, undermining demand and in turn investment in new production.
That then puts further pressure on employment, causing further falls in demand and so setting up a dangerous vicious circle which can potentially cripple an economy.
"According to our last oil prices and exchange rate forecasts, eurozone inflation should have now bottomed out but would remain negative until October," said Cedric Thellier, eurozone economist for French bank Natixis.
Prices fluctuated widely among eurozone nations, from consumer price rises of 0.7 per cent in Greece and 0.8 per cent in Malta to an annual fall of 2.6 per cent in Ireland, which was the first eurozone country to enter recession.
While prices still edged upwards in July in the 27-nation EU as a whole, the 0.2 per cent inflation rate was itself a record low.
Official figures released Thursday had offered hopes that there are at least some green shoots of economic recovery.
The eurozone economy contracted by just 0.1 per cent in the second quarter, as Germany and France unexpectedly emerged from recession, both registering 0.3 per cent GDP growth, the figures showed.
Those estimates fuelled hopes that the eurozone's biggest hitters can pull the others out of the worst recession the region has known since 1945, although analysts said the data should be treated with caution.