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Categorized | Economy

Eurozone remains on the edge of deflation

Posted on July 31, 2015

A visitor walks past the European Central Bank (ECB) logo, featuring a euro symbol, in Frankfurt, Germany, on Thursday, May, 20, 2010. Europe's debt crisis will depress the euro still further after it declined to the lowest level since 2006, according to UBS AG and BNP Paribas SA. Photographer: Hannelore Foerster/Bloomberg©Bloomberg

The eurozone remained on the edge of deflation in July after inflation across the bloc held steady at 0.2 per cent, according to a flash estimate from the EU’s statistical agency.

Data from Eurostat show that falling energy prices helped nullify the inflationary effects of the European Central Bank’s programme of quantitative easing launched this year.

    Core inflation, which strips out volatile items such as energy, accelerated 0.2 percentage points to 1 per cent year-on-year as the lower euro pushed up the costs of some goods.

    Falling energy prices, including the big drop in oil, weighed on inflation across the eurozone. Energy prices accelerated their fall, declining 5.6 per cent in July compared with a 5.1 per cent drop in June.

    Elsewhere, inflation in services hit its highest level in a year at 1.2 per cent, with analysts at Barclays suggesting that “technical factors”, such as package holidays and airfare bookings, were behind some of this increase.

    The overall estimate of 0.2 per cent was in line with expectations, although some analysts had pencilled in a return to very modest deflation this month.

    Others were bullish that inflation would creep up. Tomas Holinka, economist at Moody’s Analytics, said: “Inflation should gather momentum in coming months as oil deflation eases and food price growth gains ground.”

    Inflation has been sluggish even in fast growing economies such as Spain, which this week recorded growth of 1 per cent quarter on quarter. Consumer prices in the country dipped by 0.1 per cent year-on-year during July.

    Unemployment remained stable at 11.1 per cent across the eurozone in June, according to Eurostat. Big falls in unemployment in Spain and Portugal were drowned out by worsening figures in Italy, Belgium and Austria.

    Inflation should gather momentum in coming months as oil deflation eases and food price growth gains ground

    – Tomas Holinka, economist at Moody’s Analytics

    Italy’s unemployment climbed to 12.7 per cent in June from 12.5 per cent in May, delivering a blow to hopes that the nascent recovery in the eurozone’s third-largest economy could bring some relief to its labour market.

    Meanwhile, youth joblessness in the country increased to 44.2 per cent, its highest level since 1977 and roughly twice the eurozone average.

    The discouraging data could hurt the government of Matteo Renzi, which has been hoping that its aggressive economic reform agenda could start delivering a brighter economic outlook for most Italians. But, so far, only pockets of the Italian economy have benefited from the country’s tepid rebound.

    Finland endured an even worse performance, with unemployment jumping from 8.6 per cent to 9.5 per cent.

    Across the EU as a whole, unemployment remained at 9.6 per cent in June.