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Eurozone slips back into deflation


The eurozone slipped back into deflation in February, as new figures showed that consumer prices fell by 0.2%.

The figures are a surprise, given that inflation increased by 0.3% in January. Additionally, this is the first fall in inflation since September.

The fall was mainly caused by energy prices, which declined by 8%, as opposed to a 5.4% dip in January.

The European Central Bank (ECB) has been under pressure to prove that their efforts to increase consumer prices are working, with Mario Draghi, the ECB chief, insisting earlier this month that his policies having a positive effect.

One of these policies included making further cuts to the bank deposit rate at the ECB, which is now below 0%.

However, despite assurances from the ECB that this is working, these latest results suggest that current efforts are failing to stimulate the eurozone economy.

Further measures

Research from the European Commission suggested that consumer confidence and economic sentiment deteriorated throughout February.

As a result, it is widely believed that the ECB will take further action next month, as the G20 finance ministers and central bankers have agreed to “use all policy tools, monetary, fiscal and structural - individually and collectively” in a bid to return the economy back to growth.

Holger Sandte, an economist at Nordea Bank stated: "Deflation would be a disaster for the euro area as the burden of high debt would increase. Therefore, the ECB will continue easing monetary policy significantly.

"But no matter what the ECB decides to do on 10 March, inflation is likely to hover around zero during the next few months before it picks up - if oil prices behave well."

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