According to the data of Eurostat, consumer prices in the eurozone dropped 0.6% in January 2015 versus 0.2% in the previous month. Thus, Eurostat recorded the lowest ever reading of deflation since the euro’s adoption in 1990.
The biggest fall of 8.9% was in electricity prices. Moreover, food, alcohol, and tobacco prices tumbled down 0.1%. However, services prices inched up 1%.
Deflation is a decrease in prices that causes reduction in profits of manufacturers. It also causes losses to debtors as they have to pay off much more than they were going to. Therefore, banks will provide fewer loans.
On January 22, the European Central Bank decided to start QE. The program aims to fight deflation and to provide banks with money. QE includes purchases of the EU members’ bonds. The amount to be injected into the eurozone’s economy equals €1.1 trillion. QE will be carried out until September 2016.
Russian Federal State Statistics Service reported on January 27 that food in Russia gained 16.7% while food prices in the euro area fell 1%.
