Falling prices on radar as euro inflation drops again

Thu Jul 31, 2014 6:47am EDT
 
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By Martin Santa

BRUSSELS (Reuters) - Annual inflation in the euro zone fell in July to its lowest since the height of the financial crisis in 2009, keeping the risk of deflation on policymakers' radar but unlikely to spur the European Central Bank into further policy action.

The slowdown to 0.4 percent, coming amid subdued wage pressures despite a fall in unemployment to a near two-year low, will fuel concerns of a possible broad fall in prices across the 18-nation bloc.

But much of the decline in inflation was down to a sharp fall in volatile energy prices, Thursday's data from EU statistics office Eurostat showed, and the ECB is still waiting to assess the impact of a batch of measures it presented in June to pep up a fragile economic recovery.

"Today’s figures don’t give any assurance that the euro zone is already out of the deflation danger zone," said Peter Vanden Houte, chief euro zone economist at ING.

"Moreover, with the escalating conflict with Russia dampening growth prospects, it seems unlikely that deflation fears will disappear any time soon."

Consumer prices rose at their lowest annual rate since October 2009 when they fell by 0.1 percent, Eurostat data showed.

Core inflation - which excludes energy, food, tobacco and alcohol costs - was unchanged at 0.8 percent for the second month in a row. Energy prices fell 1.0 percent on the year.

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People receive food that is either too old or not looking nice enough for sale at the non-profit Dortmund food bank "Dortmunder Tafel"  in the western German city of Dortmund March 20, 2013. REUTERS/Ina Fassbender