Euro zone inflation slows in December

Euro zone inflation slowed in December, retreating further from the European Central Bank’s ceiling as the 18-nation currency bloc struggled to strengthen its recovery from a record-long recession.

The annual rate dipped to 0.8 per cent from 0.9 per cent in November, the European Union’s statistics office in Luxembourg said in a preliminary estimate today.

The rate has been below the ECB’s 2 per cent ceiling for 11 months, and sank to a four-year low of 0.7 per cent in October.

"Today's figures show that it's too early for the ECB to become complacent about deflation risks, especially in peripheral countries," Peter Vanden Houte, an economist at ING Bank in Brussels, said by e-mail.

“While we believe that for the time being the ECB will keep its monetary policy unchanged, not much is needed to push the central bank into action.”

The ECB, which lowered its benchmark rate to 0.25 per cent in November, sees a “subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy and subdued monetary dynamics,” according to its monthly bulletin published on December 12.

The euro erased losses against the dollar after the inflation data were released, trading at $1.3647 at 12.07pm in Brussels, up 0.1 per cent on the day.

The Stoxx Europe 600 Index was up 0.4 per cent at 328.41.

Energy prices stagnated in December after a 1.1 per cent fall the previous month, today’s data showed. Prices of alcohol, food and tobacco climbed 1.8 per cent, following a 1.6 percent rise in November.

"While the ECB remains adamant that deflation across the euro zone is not a serious risk, it will undoubtedly be uncomfortable with this latest dip in consumer price inflation," said Howard Archer, chief European and UK economist at IHS Global Insight in London.

“The ECB would certainly like to see inflation back above 1 percent sooner rather than later.”

The core inflation rate declined to 0.7 per cent in December from 0.9 per cent. Economists had forecast a drop to 0.8 per cent.

Bloomberg