Eurozone period of falling prices ends in April
Well that didn’t last long.
The drop in consumer prices in the eurozone has come to an end after four months.
Eurostat, the European Union’s statistics agency, said Thursday that consumer prices were unchanged in the year through April, up from the 0.1 percent fall recorded the previous month.
The flat reading was in line with market forecasts and reinforces expectations that the impact of lower oil prices is moderating. In the year to April, energy costs were 5.8 percent lower, against the 9.3 percent fall recorded in January.
Energy costs were the main reason why consumer prices in the eurozone fell between December and March. Fears that a long-lasting period of falling prices could weigh on the eurozone economy were largely behind the European Central Bank’s recently launched 1.1 trillion-euro ($1.2 trillion) monetary stimulus.
At first glance, a drop in prices sounds nice – particularly for consumers getting goods for cheaper.
And that appears to have happened over the past few months as consumers gained in their pocket from the fall in oil prices. Money saved filling up a car was money that could be used elsewhere. Most economic figures over the past few months have shown an uptick in eurozone economic activity, though concerns over Greece appear to be having an effect again.
The problem confronting ECB policymakers was not about the short-term fall in prices. Its concern centered on the possibility that prices might fall consistently over time. Such a longer-term, called deflation, encourages people to put off spending and can prove difficult to reverse because it requires altering peoples expectations. It can lead to years of economic stagnation, as in Japan over the past two decades, or at worst, into something more pernicious, such as the Great Depression of the 1930s.
Though deflationary pressures appear to have eased somewhat, the ECB still has a long way to go before inflation is where it wants to be. Its aim is to have prices rising at a tad below 2 percent annually.
The core rate, which strips out volatile items such as food, tobacco and energy, is also low at 0.6 percent, suggesting that pricing pressures in the economy remain subdued.
As a result, most economists think the ECB is likely to keep its stimulus for a while yet. ECB President Mario Draghi has given few indications that its scheduled Sept 2016 end-date is flexible.
“Having flirted with the dreaded specter of deflation all year, today’s figures are encouraging news for Draghi,” said Dennis de Jong, managing director of UFX.com.
Elsewhere, Eurostat also said unemployment across the eurozone was unchanged in March at 11.3 percent. The reading masked the fact that the number of jobless fell by 36,000 to 18.1 million. Over recent months, unemployment has been falling as the economy has grown stronger, particularly in Spain, which has seen some of the highest unemployment rates in the region for years.
[AP]
