Euro zone inflation fails to meet expectations

EU inflation fails to meet expectations
EU inflation fails to meet expectations   

The euro zone's rate of inflation remained unchanged in December at 0.2 percent year-on-year, according to preliminary data from Eurostat, below expectations for a 0.3 percent rise.

Core inflation, which strips out volatile prices like unprocessed food and energy, stood at 0.8 percent, year-on-year, below a consensus forecast of 0.9 percent, according to analysts polled by Reuters.

Alessia Pierdomenico | Bloomberg | Getty Images

Last month, data from the European statistics agency showed that inflation in the 19 country currency bloc stood at 0.2 percent in the year to November, revised up from an initial reading of 0.1 percent.

The latest inflation data will be food for thought for the European Central Bank. In December, the ECB announced that it would extend the duration and range of assets eligible for purchase within its stimulus program aimed at fending off sluggish inflation and lackluster growth.

Howard Archer, chief U.K. and European economist at IHS Global Insight, said the data was a "headache" for the central bank, whose inflation target is nearer 2 percent.

"The failure of euro zone inflation to pick up in December is good news for consumers' purchasing power; but it will maintain ECB concern that prolonged very low inflation could lead to a renewed weakening in inflation expectations, thereby making it harder still to get euro zone consumer price inflation up to its target rate of close to 2 percent," Archer said in a note Tuesday.

While IHS doubted that the euro zone will return to deflation, it said such a scenario "cannot be completely ruled out" given the current weakness in oil prices, which hit an 11-year low in December.

"At the very least, the weakness in oil prices has increased the likelihood that euro zone consumer price inflation will remain extremely low for longer," Archer said

Looking ahead, IHS expected the region's consumer price inflation "to head very gradually up over the coming months - due to base effects, the very weak euro and an ongoing euro zone cyclical upturn."

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