Inflation Falls In Eurozone And US Economies

By: Dailyforex.com


Figures released for the Eurozone and US economies show that inflation in both regions is well under control and has fallen below the 2% target set by the European Central Bank and the US Federal Reserve.

Inflation within the 17 member Eurozone bloc has dipped to 1.2%; the lowest level seen for three years. The American inflation figure is running at 1.1% which is the lowest value for two years. The data means that neither central bank needs to worry (in the short term, at least) that further stimulus measures will provoke unacceptable levels of inflation. Indeed, the ECB recently cut its key interest rate by 0.25% to a record low of 0.5% in an attempt to stimulate business activity through the provision of “cheap” money. The problem is that the financial sector seems to still be reluctant to lend money for businesses to expand, but in truth, there is little appetite within the business community to expand in the current economic climate. Global demand remains weak; as does business confidence and the recovery, such as it is, has yet to build any of the real momentum which would convince businesses that the time is right for expansion.

Falling oil prices have been identified as a factor which has brought inflation down. Brent Crude closed at $103.8 yesterday, having started the year at $111.3. The continuing weakness of consumer demand and high levels of unemployment together with worries about job security have kept wage inflation low (and in some cases negative) meaning that retailers have had to keep prices stable to attract customers.

Within the Eurozone, of course, there are fluctuating levels of national inflation. The highest levels of inflation are to be found
in the Netherlands, Romania and Estonia. France and Germany experienced falling inflation whereas Greece experienced deflation – falling prices. Whilst the Greeks will no doubt welcome the relief of lower prices for some goods and services against their backdrop of very high unemployment and draconian austerity measures, deflation on a wider scale could act as a brake on expansion since consumers might start to delay purchases on the hope that prices will be lower at a future date – a problem Japan has long battled with.