There is no risk at all of eurozone deflation and inflation should turn positive by the end of the year, European Union economic chief Joaquin Almunia said on Friday. "In the second half of the year base effects are going to tend to push the inflation curve upwards, I don't see any risk at all of deflation in the eurozone," Almunia told reporters after a speech to a business forum.
"There is no relevant risk of deflation, this is a result of the fall in energy prices and also the fall in economic activity," he said after speaking at a conference in the seaside town of Sitges His comments followed European Union statistics office data showing consumer prices were unchanged year-on-year in the 16-country eurozone in May for the first time. Economists expect them to start falling in June.
Asked how many months of negative inflation he saw ahead, Almunia said: "Several, but I don't know how many." Almunia also said he expected interest rates to rise in future years due to increasing debt issuance by governments and companies that would lead to crowding out in bond markets. "In the coming years, without doubt, there will be more tension in debt markets," Almunia said.
"This will lead to an increase in interest rates, it's a warning signal to those who think there are no limits to public debt levels." Almunia said the euro currency continued to be an asset for member countries and its relative strength was not obstructing economic recovery. "It's a key element to help us confront this extremely difficult situation, without the euro, every member country would have faced even greater problems," Almunia said. "It's an asset, and it will continue to be so."
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