Eurozone consumer prices fell by a record 0.6 percent in January, EU data showed Friday, confirming deflation could be taking hold and putting pressure on a historic bond-buying plan by the ECB to deliver. The drop from minus 0.2 percent in December appears to back the European Central Bank''s decision last week to launch a bond-buying spree to drive up prices.
Plummeting world oil prices were largely to blame for the fall in the 19-country eurozone, already beset by weak economic growth and high unemployment, the EU''s data agency Eurostat said. "The ECB was thus more than justified in taking aggressive action earlier this month," said Christian Schulz of Berenberg Bank. The -0.6 inflation rate matches the same record drop in prices the eurozone set in July 2009 at the worst of the global financial crisis. But the European Commission cautioned that core inflation, which strips out highly fluctuating components like energy, still remained in positive territory.
"If you look at core inflation, which we consider to be a better measure of the underlying price pressure, that still remains positive at 0.6 percent," said commission spokeswoman Annika Breidthardt at a news conference. But even at the level, core inflation remained well below the ECB''s official inflation target of near two percent.
"Falling prices today and alarmingly pessimistic expectations of where prices are heading in the future proves beyond all reasonable doubt it was high time (for the ECB) to act," Richard Barwell, senior European economist at Royal Bank of Scotland Group told Bloomberg. With fears of deflation increasing, the ECB last week finally decided to embark on a quantitative easing programme involving the purchase of 1.14 trillion euros ($1.29-trillion) in sovereign bonds.
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