Euro zone inflation drops to record low

Inflation in the 16 nations that use the euro hit a record low in March, growing just 0.6 percent from a year ago as oil prices slumped, the EU statistics agency said Tuesday.
MAR 31, 2009
By  Bloomberg
Inflation in the 16 nations that use the euro hit a record low in March, growing just 0.6 percent from a year ago as oil prices slumped, the EU statistics agency said Tuesday. The inflation rate has never been so low since the euro launched in 1999 nor since records for member countries started in 1996. Euro zone inflation was 1.2 percent in February. European Central Bank President Jean-Claude Trichet said Tuesday that falling inflation reflects declining oil and commodity costs and is not a sign that the slowing economy is causing real prices to shrink. Eurostat will explain the figure when it publishes more details on April 16. Spain on Monday reported deflation in March, the first time any euro country has seen prices contract on an annual basis since the financial crisis started. The European Commission expects euro inflation to rebound from July 2009, a year after oil prices peaked. Until then, the region may see brief deflation — although ECB officials say this will not cause a long-term downward spiral in prices. Luxembourg Prime Minister Jean-Claude Juncker, who leads regular economic talks between euro-zone nations, told the European Parliament's economy committee Tuesday that current stimulus plans would ultimately hike inflation. "There is a .... considerable risk that when we come to the end of the crisis, history has shown this, that there will be a high level of inflation," he said. He said it was too soon to launch new spending packages and said governments risked losing voter confidence if they piled on debt that they would need to pay back by hiking taxes in the future. Unlike the United States and Britain, the European Central Bank has been reluctant to discuss alternative policies to battle falling prices, such as quantitative easing — where central banks print money to stoke growth and raise prices. Instead, the European Commission is warning some euro nations — Spain, Greece, Ireland and Slovakia — that they need to manage their price competitiveness because rising wages and high prices may hurt their exports and foreign investment. This puts pressure on countries to freeze wages — or even reduce them, as Ireland is doing with a series of planned public sector pay cuts. Countries with high wages, excessive household spending, surging house prices and high private and foreign debt are more vulnerable to the crisis, the EU said. It warned that governments need to act to prevent "significant" unemployment in years to come. It said governments should try to make labor and product markets more flexible, knocking down national barriers and boosting competition with other European nations.

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