Eurozone: Inflation drops to lowest in almost five years
August 29, 2014
According to the flash estimate that Eurostat released on 29 August, annual headline inflation—based on the harmonized index of consumer prices (HICP)—added 0.3% in August over the same month last year. The reading was down from the 0.4% increase recorded in July and was in line with market expectations. The result sparks further worries of a deflationary threat, as inflation dropped to the lowest level in five years. Persistent low inflation may cripple the incipient recovery and inflation has now been in what ECB President Mario Draghi called the “danger zone” of below 1.0% for the eleventh consecutive month. Month-on-month price variations and a more detailed set of data will be provided on 17 September.
In July, consumer prices fell 0.7% over the previous month, which contrasted the 0.1% increase recorded in June. The reading marked the second drop in prices in three months. Annual inflation slowed from 0.5% in June to 0.4% in July. Annual average inflation inched down from 0.8% in June to 0.7%.The core inflation index, which does not include prices for energy, dropped 0.7% over the previous month (June:+0.1% month-on-month). Annual core inflation was stable at June’s 0.8%.
At a country level, 10 of the 18 Eurozone economies posted annual inflation rates equal to or above the regional average. Austria (1.7%) and Luxembourg (1.2%) recorded the highest annual inflation rates. At the other end of the spectrum, Greece and Portugal experienced year-on-year decreases in harmonized consumer prices (-0.8% and -0.7% respectively). Among the major economies in the Eurozone, inflation was above the regional average in Germany (0.8%) and France (0.6%), whereas it was below average in Italy (0.0%) and Spain (-0.4%).
Author: Armando Ciccarelli, Head of Data Solutions