Deflation fears for eurozone overshadows dip in unemployment as inflation falls to five-year low
Fears the eurozone is heading for a painful bout of deflation intensified yesterday as inflation fell to its lowest level for nearly five years.
The Eurostat statistics agency said inflation dropped from 0.5 per cent in June to 0.4 per cent in July - the weakest reading since October 2009.
The figures overshadowed a dip in unemployment from 11.6 per cent to 11.5 per cent - the lowest level since September 2012 - and fuelled fears that prices will start falling across the single currency bloc.
Deflation fears: A bout of deflation could sap demand and derail the fragile economic recovery as businesses and households put off spending in the expectation that prices have further to fall
A bout of deflation could sap demand and derail the fragile economic recovery as businesses and households put off spending in the expectation that prices have further to fall.
Peter Vanden Houte, chief eurozone economist at Dutch banking group ING, said the region remains in a 'deflation danger zone'.
In June, the European Central Bank cut one of its main interest rates into negative territory in a desperate bid to breathe life into the economy.
But Jonathan Loynes, chief economist at Capital Economics, said: 'The ECB has more work to do to tackle the risk of deflation.'
The central bank will take some heart from a fall in unemployment, although 18.4m are still out of work in the eurozone, including 3.3m under 25s, or 23.1 per cent.
Unemployment is lowest in Austria, at 5 per cent, and Germany, at 5.1 per cent, and highest in Greece, at 27.3 per cent, and Spain, at 24.5 per cent. The UK jobless rate is 6.5 per cent.
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