Eurozone inflation slows to 0.8% as economy struggles to recover

Eurozone inflation slowed in December, retreating farther from the European Central Bank’s ceiling as the 18-nation currency bloc struggled to strengthen its recovery from a record-long recession.

The annual rate dipped to 0.8% from 0.9% in November, the EU’s statistics office in Luxembourg said in a preliminary estimate.

That’s in line with the median forecast in a Bloomberg News survey of 31 economists. The rate has been below the ECB’s 2% ceiling for 11 months, and sank to a four-year low of 0.7% in October.

“Today’s figures show that it’s too early for the ECB to become complacent about deflation risks, especially in peripheral countries,” said Peter Vanden Houte, an economist at ING Bank in Brussels.

“While we believe that for the time being the ECB will keep its monetary policy unchanged, not much is needed to push the central bank into action.”

The ECB, which lowered its benchmark rate to 0.25% in November, sees a “subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy and subdued monetary dynamics,” according to its monthly bulletin published on Dec 12. The Frankfurt- based central bank will leave its main refinancing rate unchanged tomorrow, according to a separate Bloomberg survey.

The euro erased losses against the dollar after the data was released, trading at $1.3647 at 12:07pm in Brussels, up 0.1% on the day. The Stoxx Europe 600 Index was up 0.4% at 328.41.

Energy prices stagnated in December after a 1.1% fall the previous month, the data showed. Prices of food, alcohol, and tobacco rose 1.8%, following a 1.6% rise in November. The cost of services increased 1% after a 1.4% jump.

ECB president Mario Draghi sees “no immediate need to act” on the ECB’s key rates, Der Spiegel reported on Dec 28, citing an interview. “The crisis isn’t over, but there are many encouraging signs,” he said, adding that he sees no signs of deflation in Europe.

“While the ECB remains adamant that deflation across the eurozone is not a serious risk, it will undoubtedly be uncomfortable with this latest dip in consumer price inflation,” said Howard Archer, chief European and UK economist at IHS Global Insight in London.