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The ECB will get radical soon to stop the eurozone going down a deflationary hole

Prices are falling, but that’s not the good news you may think.

ECB president Mario Draghi is under pressure to act ECB president Mario Draghi is under pressure to act Source: Michael Probst/AP/Press Association Images

CHEAP OIL PUSHED eurozone price growth into negative territory in December – the first time the region has experienced deflation since the depths of the financial crisis.

The news is expected to mount even more pressure on European Central Bank (ECB) president Mario Draghi to launch radical economic-stimulus measures later this month.

Official estimates from Eurostat showed eurozone inflation was expected to be negative in December when compared to the same month in 2013, mainly due to a massive drop in energy prices.

Annual inflation was down from 0.3% in November to -0.2% for the most recent month as energy costs plunged 6.3%.

There was also a 1% drop in unprocessed food prices, with costs for both industrial goods and the broader food, alcohol and tobacco sector also flat.

Eurostat Source: Eurostat

It is the first time eurozone prices have slid into negative figures since October 2009.

Time for ECB to get radical

Draghi and the ECB have so far been resisting calls to unveil a quantitative easing programme – which means the bank would effectively print money to lend to European states – to revitalise flagging economies across the region.

The official lender has already cut interest rates to record lows and launched a corporate bond-buying scheme but neither move has been enough to kickstart a broad recovery.

Ireland has been one of the few eurozone economies to buck the trend and post strong GDP growth figures.

Germany has been particularly resistant to more-radical stimulus measures, however deflation poses a major risk as it is considered harder to haul in than even sky-rocketing inflation.

The fear is that consumers will stop spending because they expect prices to keep falling, putting pressure on both company profits and government tax takes, and sending economies into free fall.

Inflation well below target

Central banks generally target inflation of about 2% as being healthy for economies. In the eurozone, the figure has consistently been hovering below 1% and barely above zero in recent months.

The ECB has already been widely tipped to announce a quantitative easing plan when it meets later this month.

- Originally published at 11.21am

READ: You paid more tax than expected last year on everything – except local property tax >

READ: Property prices rose by 16.3% last year – and they’re not expected to stop climbing >

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About the author:

Peter Bodkin  / Editor, Fora

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