—HICP Falls by an Annual Rate of 0.3% in December, Marking the Fifth-Straight Decline
By Laurie Laird
LONDON (MaceNews) — Eurozone inflation remained stubbornly in the red at the close of last year, with the HICP index slumping by an annual pace of 0.3%, according to data released by Eurostat on Wednesday.
That decline matches the flash estimate released earlier in the month and marks the fifth straight fall in inflation, providing the potential for a lively debate at Thursday’s meeting of European rate setters. Inflation has largely failed to meet the ECB’s target of close to but less than an annual rate of 2% over the past decade, with the HICP anchored in negative territory in every month since July.
ECB President Christine Lagarde has suggested that an ongoing strategic review of monetary policy could assess whether the HICP understates the underlying level of inflation and could also examine the possibility of a more symmetric approach to meeting the inflation target. But that review will not complete until later in the year, raising questions over whether the Bank may be forced to implement immediate stimulus to address the inflation shortfall.
The Bank’s Governing Council increased the scope and timeframe of its Pandemic Emergency Purchase Programme at its final meeting of 2020, but minutes of that meeting showed that not all rate-setters agreed with the decision, with some supporting a larger increase and others urging the council to “keep its powder dry” should the eurozone economy deteriorate further over the first quarter.
Recent strength in the euro could further complicate the Bank’s quest to meet its inflation target. The euro appreciated by more than nine percent against the dollar last year, before sliding back a bit over the first three weeks of January. The single currency rose modestly to $1.2155 in early European trading, before falling back to $1.2130 following the inflation release.
A 6.9% annual fall in energy prices accounted for much of the decline in December inflation. Excluding energy, the HICP increased by 0.5%, down from 0.6% in the previous two months. Food, alcohol and tobacco prices declined by 0.4% between November and December, dampening annual inflation to 1.3% from 1.9% in November.
Inflation remained subdued in the bloc’s largest economies, falling by an annual rate of 0.7% in Germany and declining by 0.3% in Italy.
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Contact this reporter: laurie@macenews.com.
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