Eurozone Inflation: December Drop Keeps Rate Under 1 Percent

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The Eurozone’s annual inflation rate declined in December, reigniting deflation concerns. The rate fell to 0.8 percent  from 0.9 percent in November, according to the Eurozone’s statistics office, Eurostat. The European Central Bank’s (or, ECB) target for inflation is just under 2 percent. The decline follows an uptick in November. Then, the rate increased from October’s four-year low of 0.7 percent to 0.9 percent. Even though the rate slightly increased, it is far from where it was in November 2012, when it stood at 2.2 percent.

In early December, the ECB explained it would keep an “accommodative” monetary policy “for as long as necessary, and will thereby continue to assist the gradual economic recovery in the euro area.” Its forward looking guidance, and expectation of low interest rates, “continues to be based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy and subdued monetary dynamics.”

“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 ING’s chief eurozone economist said. ”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.” Reuters provided Vanden Houte’s remarks.

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