Faster fall in euro-zone prices | Shanghai Daily

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August 15, 2009

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Faster fall in euro-zone prices

PRICES in the 16 countries that use the euro fell on an annual basis for the second straight month in July and by more than previously anticipated, official figures showed yesterday.

The European Union's statistics office Eurostat said consumer prices in the euro zone fell by 0.7 percent in July from the previous year, 0.1 percentage point more than it had previously estimated and ahead of June's 0.1 percent fall.

Eurostat said the biggest drop was recorded in Ireland, where prices slid 2.6 percent in the year to July.

It said a 5.5 percent decline in transport cost, related to lower year-on-year energy prices, was the main influence behind the further fall in overall prices. A year ago, oil prices were trading at an all-time high of around US$147 a barrel, compared with the July average rate of around US$65.

The only members of the euro zone to post rising prices in the year to July were Greece, Malta, Slovakia and Finland.

Germany, the euro zone's largest economy, experienced a price drop of 0.7 percent in the year to July.

Yesterday's figures are unlikely to cause too much concern at the European Central Bank, which has predicted a short period of falling prices before the downward pressure coming from oil prices disappears as last year's sharp increases drop out of the annual comparison.

As a result, outright deflation -- where prices fall consistently over a period of time and can cause a further downturn in the economy -- is not the consensus view within the markets and at the European Central Bank.

"While in recessionary conditions the absence of any inflation pressures may cause alarm, the fact that both Germany and France unexpectedly returned to growth in the second quarter underpins the ECB's predictions that the negative price pressures will be temporary," said Jane Foley, research director at Forex.com.

Inflationary pressures are not expected to emerge any time soon despite an improving growth backdrop as higher unemployment will continue to lower the ability of workers or unions to negotiate big wage increases.

"Given that economic output in many member states is significantly below its potential, prices are likely to stay subdued for some time," said Jorg Radeke, economist at the Center for Economic and Business Research.




 

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