Eurozone inflation fell in July to its lowest level since the height of the financial crisis nearly five years ago, data showed yesterday, highlighting deflation risks on the European Central Bank’s radar.

Consumer prices in the 18 countries sharing the euro rose by 0.4 per cent on the year in July, the weakest annual rise since October 2009 when prices fell by 0.1 per cent, the EU’s statistics office Eurostat said.

Annual core inflation – which excludes energy, food, tobacco and alcohol costs – stood unchanged at 0.8 per cent for the second month in a row.

Energy prices fell by 1.0 per cent on the year in July, after a 0.1 per cent rise in June, while prices of services were up by 1.3 per cent for the second month running.

The ECB cut interest rates and announced a barrage of other measures in June to pump money into the sluggish eurozone economy, adding it stood ready to act again should inflation expectations deteriorate from the current outlook.

Eurozone inflation has been stuck in what the ECB calls a ‘danger zone’ of below 1 per cent since October last year

The bank holds a policy meeting today week and analysts expected it to stay put, reflecting signals from the Governing Council that more time is needed to assess the impact of its latest measure on the real economy.

Eurozone inflation has been stuck in what the ECB calls a ‘danger zone’ of below 1 per cent since October last year and is not expected to bounce back to the bank’s target of close but below 2 per cent even by 2016, when it should hit 1.4 per cent.

Germany, Europe’s largest economy, saw annual inflation easing in line with expectations to 0.8 per cent in July from 1 per cent, days after the ECB and the country’s Bundesbank emphasised the need to raise wages in the eurozone’s growth engine.