Euro zone slides deeper into deflation

Euro zone inflation: Reaction
Euro zone inflation: Reaction   

The euro zone slid further into deflation in January, underlining the case for the European Central Bank's full-blown bond-buying program, announced earlier this month.

Prices fell by 0.6 percent year-on-year in January, official flash estimates showed Friday, below the 0.5 percent-slide forecast by analysts polled by Reuters. In December, the region fell into deflation for the time since 2009, when prices fell by 0.2 percent.

The euro zone-wide figures came one day after Germany reported it had slipped into deflation. Europe's largest economy posted price falls of 0.3 percent in January, year-on-year.

"Deflation is now widespread in both the core and periphery of the euro zone, with Germany the latest to join the party," said Ben Brettell, senior economist at Hargreaves Lansdown, in a research note published after Eurostat's figures were out on Friday.

Earlier this month, the European Central Bank announced the launch of an asset-buying program including euro zone government bonds, known as quantitative easing (QE).

The program's main purpose will be to boost inflation back towards the "just under 2 percent" level targeted by the central bank and sovereign bond purchases will start in March.

January's further slide in prices was driven by an accelerating fall in energy costs, Eurostat said. Energy prices fell by a sharp 8.9 percent in January, compared with 6.3 percent in December. Prices in January for food, alcohol, tobacco and non-energy-related industrial goods also fell; only prices for services were seen rising.

"Falling energy costs can be regarded as 'good' deflation, as they should relieve pressure on household budgets and boost consumer spending," Brettell added.

"However, more worrying is the downward trend in the core rate of inflation, which excludes items such as food and energy, whose prices are largely determined by global factors."

Unemployment falls

An employee counts a stack of 10 euro banknotes taken inside a Travelex store, operated by Travelex Holdings Ltd., in London
Simon Dawson | Bloomberg | Getty Images
An employee counts a stack of 10 euro banknotes taken inside a Travelex store, operated by Travelex Holdings Ltd., in London

In some much-needed good news for the euro zone, official figures also revealed on Friday that the region's jobless level had fallen.

Eurostat announced Friday that seasonally-adjusted unemployment in the single currency zone fell to 11.4 percent in December—the lowest recorded in the region since mid-2012, and down from 11.5 percent in November.

By comparison, the unemployment rate stood at 5.6 percent in the U.S. in December 2014.

- By CNBC's Katy Barnato