Eurozone: Eurozone inflation falls into negative territory in February
February 29, 2016
A surprising decline in consumer prices in the Eurozone fueled fears of deflation in February and raised the chances of a more aggressive easing package by the European Central Bank. According to a flash estimate released by Eurostat on 29 February, harmonized consumer prices—measured by the harmonized index of consumer prices—swung from a 0.3% year-on-year increase in January to a 0.2% decrease in January. The result, which undershot a more moderate flat reading that markets had expected, represented the first negative print since September 2015. According to Eurostat, the main contributor to February’s decline was a drop in energy prices. The surprising factor, though, was a drop in core inflation, which fell to 0.7% in February—the lowest level since April 2015. According to analysts, the weakening of core inflation appears to be broad-based and is in line with continuing softness of producer prices and PMI survey responses regarding input and output prices. Month-on-month price variations and a more detailed set of data will be provided on 25 February.
Meanwhile, more complete data showed that harmonized consumer prices plunged 1.5% in January over the previous month, which came in below the unchanged figure observed in December. Inflation in the Eurozone stood at 0.3% in January, bringing annual average inflation to 0.1%.
Looking at the countries in the common-currency bloc, 9 of the 19 Eurozone economies showed inflation rates equal to or above the regional average. Belgium (1.8%), Austria (1.4%) and Malta (0.8%) were the economies with the highest rates. In contrast, Cyprus (-1.1%), Slovenia (-0.8%) and Slovakia (-0.6%) were the economies that registered annual declines in HICP consumer prices.
Among the largest economies in the Eurozone, inflation rose in Germany and Italy in January, while it stabilized in France. In Spain, the annual variation in consumer prices was negative in December for a sixth consecutive month.
Author: Ricardo Aceves, Senior Economist