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Deflationary pressure hits the Eurozone

As deflation hits the Eurozone for the first time since its introduction in 2009 there are fears for the short to medium term. The inflation figure for May came in at 0% but the figure for June has come in at -0.1% which has started alarm bells ringing within the EU. A mixture of lower energy costs, lower food prices and lower demand in general has introduced a significant about of competition into the Eurozone business arena which has seen prices fall during June.

The European Central bank has a target rate of around 2% for Eurozone inflation although the rate is currently going in the opposite direction. A period of excessive deflation would severely impact upon the Eurozone economy and has the potential to lead to further financial issues. While the likes of the UK had initially performed much worse than the average Eurozone economy it seems as though the ship has now turned full circle and the Eurozone is heading down as the UK looks at a short to medium-term recovery.

This is the first real test of resolve for the EU government and could be something of a steep learning curve for those in the Eurozone.

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