consumer prices in the eurozone fell by more than expected in December because of much cheaper energy, a first estimate by the European statistic office showed in data that is likely to trigger the European Central Bank’s (ECB) government bond buying programme.
Eurostat said inflation in the 18 countries using the euro in December was -0.2 per cent year-on-year, down from 0.3 per cent year-on-year in November. The last time eurozone inflation was negative was in October 2009, when it was -0.1 per cent.
The ECB wants to keep inflation below but close to two per cent over the medium term.
Eurostat said that core inflation, which excludes the volatile energy and unprocessed food prices, was stable at 0.7 per cent year-on-year in December, the same level as in November and October. But energy prices plunged 6.3 per cent year-on-year last month and unprocessed food was 1.0 per cent cheaper, pulling down the overall index despite a 1.2 per cent rise in the cost of services.
The ECB is concerned that a prolonged period of very low inflation could change inflation expectations of consumers and make them hold back their purchases in the hope of even lower prices, triggering defla- tion.
Because the ECB’s interest rates are already at rock bottom, the bank is preparing a programme of printing money to buy government bonds on the secondary market to inject even more cash into the economy, boost demand and make prices rise faster.
Economists expect the decision to launch such a bond buying programme could be made as soon as the ECB’s next meeting on January 22.
“We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary to react to a too long period of low inflation.
“There is unanimity within the Governing Council on this,” ECB President Mario Draghi said earlier this month.