The annual inflation has fallen from a slight growth of 0.3 percent in December.
It is the first time since 2009 – right under the global financial crisis – that the euro countries are experiencing declines.
Why is it dangerous?
The fall helps to reinforce the crisis in the euro countries where economic growth has stagnated and unemployment is at a record.
The scary deflation or permanent price drop is that people and businesses to stop using money and invest under expectations that everything will be cheaper tomorrow.
This stops much economic activity up .
– Inflation is likely to fall even more in January and remain extremely low throughout the year, says economist Evelyn Herrmann in the French major bank BNP Paribas’ branch in London to the US news agency Bloomberg.
Oil price fall turns into
Oil price fall lowered energy prices by 6.3 percent in December, while prices of food, alcohol and toball was completely unchanged, the figures from Eurostat.
The only inflation that was registered was on services rose 1.2 percent.
– Here to stay
The fall in December puts additional pressure on euro area central bank (ECB) about putting in Once the printing press to prevent a prolonged fall in prices or deflation.
It is expected a decision on the ECB’s monetary policy meeting on 22 January.
In recent days, European media reported that the ECB is preparing to do this to buy up government debt in the euro area (so-called quantitative easing of monetary policy).
– The ECB can not wait long to announce quantitative easing to get up expectations about inflation. The market sees this as just the beginning. The negative inflation is here to stay for a while, writes Nordea in a report on Wednesday morning.
Clean weapon is exhausted
To use the printing press to press up more money can create inflation.
This instrument is also used to get up the economic growth when clean weapon is exhausted.
In euro case applies now to prevent the price fall deeply entrenched.
Since last June, the ECB has lowered its key interest rates twice, to record low 0.05 percent.
Have worked in other countries
All the other major Western countries – the US, UK and Japan – has since the global financial crisis in 2008 used the printing press to stimulated a new upswing.
In the US and UK this has given results. The US Federal Reserve (FED) adopted before Christmas to liquidate this acquisition program.
It is expected FED later this year is going to raise its key interest rate has been at record low 0-0.25 per cent since December 2008 .
Three possible measures
ECB chief Mario Draghi signaled by the previous monetary policy meeting at the central bank before Christmas that the bank is considering buying up government debt.
Since then, preparation for introducing such an acquisition program going by the ECB headquarters in German Frankfurt am Main.
The Dutch newspaper Het Financieele Dagblad wrote Monday that the ECB Board at its meeting on January 22 probably are submitted three possible measures to stimulate growth.
One of these measures is thus the acquisition of state debt securities in financial markets.
German resistance
But large euro countries such as Germany has long been an opponent the ECB – thus euro countries – will take over the debts to the crisis euro countries in southern Europe.
Germany’s Governor Jens Weidmann has until lately argued against initiate the printing press. He has pointed out that the fall in oil prices can act as a “mini stimulus package” for euro area economy.
Fall in several euro countries
Economic stagnation and drop in oil prices contributes to the eurozone fell to deflation .
Euroland like Greece and Spain are already experiencing falling prices (deflation).
Figures from Germany Monday showed a rise in December of just 0.1 percent – the lowest inflation registered 2009.
The economic growth in the euro countries was marginal 0.2 percent in the third quarter last year which in practice means stagnation.
Stable high unemployment
Figures from Eurostat Tuesday showed that unemployment in the euro area was unchanged at 11.5 percent in November from 11.9 percent a year ago.
According to the new figures were 18.4 million people in the euro area without work in November. Throughout the EU – all 28 member states – was 24.4 million unemployed.
Youth unemployment increased by 0.1 percentage points to 23.7 percent.
In the crisis countries in Southern Europe around half of young people under 25 who do not attend school or perform military service, no job.
Youth unemployment in Spain was 53.5 percent, in Greece 49.8 percent (September figures), in Italy 43.9 percent and Portugal 34.5 percent.
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