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Deflation in the euro area

Prices in the euro area decreased by 0.2% for the period from December, 2013 to December, 2014. Deflation will keep in January as well. This is due to the fall in oil prices, which led to lower production costs of basic goods.

Deflation was recorded by the end of 2014 in the euro area. The last time this event was reported in the European economy in October, 2009. Economists anticipated price decline of 0.1%, so that the final figure was close to the forecast, writes The Financial Times.

As expected, recent data on the negative inflation will push the European Central Bank to the beginning of a full-scale program of quantitative easing, as may be announced as early as on January, 22.

Regulators generally expect that the decline in energy carrier prices will lead to increased consumption. The nuclear measure of inflation, which excludes volatile prices, such as for food and energy carriers, increased to 0.8%.

In general, prices in the euro area were growing during the year for more than less than 1% per month, while the ECB has promised to keep inflation at just below 2%. According to the chief economist for European Affairs from RBC Capital Markets James Ashley, in the created state of affairs should not blame only the decline in oil prices, but also failed fiscal and monetary policy authorities.

In early January, ECB President Mario Draghi said that the euro area threatens deflation in 2015, leading to slower economic growth. This “risk cannot be excluded fully”, but the likelihood of this scenario is low, the banker said.

According to Draghi, high taxes, half-hearted reforms and bureaucracy of decision-making process affect the slowdown.