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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