Price cuts put eurozone at deflation risk

Weak consumer spending and intense competition among retailers are forcing some makers of packaged goods to lower their prices, intensifying the threat of eurozone deflation.

Annual inflation is running at just 0.5% in the currency area, well into what the ECB has described as a “danger zone” below 1%, and could fall further when figures for July are released later this week.

The ECB has said it sees no signs that financial markets or consumers expect a prolonged period of prices falling across the economy — as Japan experienced in its “lost decade” when people deferred spending in the knowledge that goods and services would get cheaper — thereby creating a downward economic spiral.