Record fall in eurozone consumer prices in July

Consumer prices in the eurozone fell a record 0.7 per cent in July over one year, after dropping for the first time last month, according to official EU figures released yesterday.

The new figures show a significant price fall and mark the second straight month that the inflation rate has been in negative territory, the European Union's Eurostat data agency said.

The inflation rate was recorded at minus 0.1 per cent in June, as the credit crunch took its toll, the first time that eurozone prices had dipped since the euro bloc was formed in 1999 and even before statistics for the area began to be compiled in 1996.

Most economists have expected that eurozone inflation would dip briefly into negative territory but they have ruled out a longer Japanese-like bout of deflation, a pernicious downward spiral in prices.

While the prospect of falling prices may delight consumers it can wreak havoc on the broader economy as households put off purchases hoping for future bargains, undermining demand and in turn investment in new production.

That then puts further pressure on employment, causing further falls in demand and so setting up a dangerous vicious circle which can potentially cripple an economy.

The July figure was also down on the 0.6 consumer price drop which Eurostat had given as an initial estimate for July.