Inflation Spreads Across Eurozone
January 18 2017 - 06:05AM
Dow Jones News
By Paul Hannon
Only one of the eurozone's 19 members experienced a decline in
consumer prices during December, a sign the threat of deflation
that once loomed over the currency area has abated.
The European Union's statistics agency said Wednesday that
consumer prices were 0.5% higher than in November, and up 1.1% on
the final month of 2015. That marked a pickup in the annual rate of
inflation from 0.6% in November, and was in line with an earlier
estimate.
As recently as May 2016, consumer prices were lower than a year
earlier across the eurozone. But a combination of rising energy
prices and steady, if modest, economic growth has stoked
inflationary pressures.
That pickup in inflation has spread throughout the currency
area, and to countries that have suffered most from the eurozone's
government debt and banking crises.
In December, only Ireland reported consumer prices that were
lower than a year earlier, making it the smallest number of
countries in deflation since February 2013, when all members
experienced inflation. And Ireland is a special case, since its
consumer prices have been pushed down by the British pound's
weakness against the euro in the wake of the U.K.'s decision last
summer to leave the European Union. Because Ireland imports a large
share of its goods and services from the U.K., sterling's weakness
has had a larger effect than elsewhere.
Among other countries that received an international bailout at
the height of the eurozone's troubles, Greece and Cyprus each
reported rises in consumer prices after long periods of deflation,
while Spain reported a third straight month of inflation. Slovakia
also emerged from a long period of price declines.
Although the European Central Bank focuses on developments in
the eurozone as a whole, the spread of inflation will likely
reinforce its view that the threat of deflation has diminished
significantly, which is one of the reasons policy makers gave for
reducing the monthly rate of bond purchases at their December
meeting.
However, Eurostat confirmed that much of the revival of
inflation is down to higher energy prices, which were up 2.6% on
the year in December, having been down 1.1% in Nov. The core
measure of inflation--which excludes energy and food prices--edged
up to 0.9% from 0.8%, but was still weaker than policy makers would
like.
The ECB's governing council meets Thursday in Frankfurt, and is
expected to leave policy unchanged. While ECB President Mario
Draghi will likely welcome recent economic developments in the
eurozone, he will likely also stress that inflation remains well
short of the central bank's target, which is set at just below
2%.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
January 18, 2017 05:50 ET (10:50 GMT)
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