Deflation?

Deflation within the Eurozone is once again back on our minds after the latest reading of price movements saw inflation fall to a record low.

Eurostat, the European Commission’s statistics bureau, showed overall inflation slowed to 0.8% in December from 0.9% the previous month.

Core inflation, which excludes the most volatile prices such as food and energy, slowed to 0.7% – the lowest level since Eurostat started calculating inflation rates in 1996.

The news may prompt action from the European Central Bank (ECB), which meets this week to decide on interest rates.

Last month the ECB forecast inflation would return to a target of just below 2% in the medium term. It has forecast inflation will hit 1.1% this year, before rising to 1.3% in 2015.

Azad Zangana, European economist at Schroders, said persistently low levels of inflation and the threat of deflation continue to hang over much of the eurozone.