Eurozone annual inflation turns negative for first time

According to a flash estimate published by Eurostat, eurozone annual inflation is expected to be -0.1 per cent in June. It was 0.0 per cent in May.

This marks the first time since the creation of statistics for this region that the eurozone has recorded a fall in prices.

This level is historically unprecedented since the creation of the eurozone in 1999 and even since the creation of statistics for this zone in 1996, Eurostat having recalculated data for the years preceding the creation of the eurozone.

After reaching an all-time high of four per cent in summer 2008, inflation has clearly slowed down over recent months, in the wake of the fall in oil prices and the economic slowdown.

Economists were expecting the 16 countries sharing this currency to experience a fall in prices over one year, as of this month, essentially due to a comparison effect, because energy prices had soared in spring and summer 2008.

However, most of them - like the economic leaders of the eurozone notably France and Germany - generally anticipate the negative transition to be a short-term one, making it possible to avoid deflation, defined as a generalised and extended fall in prices.

Contrary to what is happening in the rest of the euro area Malta is currently experiencing a high inflation rate although this is also expected to drop substantially in the coming months. In May, Malta registered the highest inflation rate in the euro area at 3.4 per cent although it dropped by 0.6 per cent when compared to a month earlier. The main reason is the impact of higher utility rates on Malta's harmonised index of consumer prices.

Despite the general fall in prices in the eurozone, the euro was up against the dollar on the European exchange markets, yesterday. Today the European Central Bank will meet and is expected to keep its base rate unchanged at one per cent, despite appeals from the OECD to bring its intervention rate closer to zero.