According to an article published on the Wall Street Journal today,"the EU's official statistics agency said Friday consumer prices rose 0.9% in the 12 months to October, a lower annual rate of inflation than the 1.3% recorded in September, and the lowest since October 2009".
Eurostat also confirmed that the annual rate of inflation in the 17 countries that share the euro was 0.7% in October, the lowest level since November 2009. Eurostat's preliminary estimate, released Oct. 31, prompted a quick response from the European Central Bank, which cut its benchmark interest rate to a record low of 0.25% last week.
The latest figures indicate that falling inflation rates are a broader issue for economies throughout Europe, many of which are struggling to return to growth. Eurostat reported Thursday that the combined gross domestic product of the 17 euro-zone members grew by just 0.1% in the third quarter, while the combined GDP of the EU's 28 members grew by just 0.2%.
Eurostat's figures show that four EU members experienced deflation in October: Greece, Bulgaria, Cyprus and Ireland. But three other members were on the cusp, with prices flat on the year in Spain, Latvia and Portugal. Only two EU nations had an inflation rate in touching distance of the 2.0% mark that many central banks consider healthy, those being Estonia and the U.K.
The slowdown in inflation is a mixed blessing. While it should help boost real incomes at a time of weak wage growth, it also raises the specter of deflation—a sustained fall in prices that can play havoc with public and private efforts to repay debts and risks bringing consumer spending to a halt.
When prices start to fall, consumers can postpone purchases in the expectation that they will get better value for their money in the future. That can in turn weaken economic activity, and create further deflationary pressures. Following the difficulties Japan has experienced in getting out of its long period of deflation, other central banks are anxious to avoid a similar struggle.
Released Thursday, the minutes of the Czech central bank's policy meeting held last week show how concerned policy makers in many parts of Europe are about the threat of deflation. On the same day the ECB cut its benchmark rate, the Czech central bank announced it would intervene in currency markets to weaken the koruna and boost prices of imports.
"The opinion was expressed that it was necessary to react preventively and not wait until deflation occurred, and thus prevent losses in [gross domestic product] and employment," the minutes said.
