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Eurozone Inflation Slows in December

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Eurozone Inflation Slows in December

Eurozone consumer inflation slowed in December, raising concern the currency region will struggle to recover from record-long recession.

The Consumer Price Index, which tracks price changes of a representative basket of goods and services, fell to an annual pace of 0.8 percent in December. Inflation had risen to 0.9 percent in November after reaching a four-year low at the beginning of the fourth quarter.

Core inflation excluding volatile items such as food and energy slowed from 0.9 percent to 0.7 percent. Food, alcohol and tobacco products are expected to have the highest annual rate in December, the European Union’s statistics office said. Meanwhile, energy prices continued to stagnate at a rate of 0.9 percent, after hitting 1.1 percent in November.

The slowdown to inflation also raises concerns the European Central Bank could pursue more drastic policy measures to stimulate the stagnating euro region, which continues to struggle with near-record high unemployment. Last year reports surfaced the ECB was actively considering negative deposit rates to help avoid deflation. The ECB unexpectedly cut its benchmark lending rate to 0.25 percent in November due to the “subdued outlook for inflation extending into the medium term.”

“Today’s figures show that it’s too early for the ECB to become complacent about deflation risks, especially in peripheral countries,” said Peter Vanden Houte of ING Bank NV in Brussels.

While inflation continues to trend well below the ECB’s target, the central bank is relatively confident deflation will not pose a serious risk to Eurozone recovery, which is expected to deepen in 2014. In an interview with Germany’s Der Spiegel last month ECB President Mario Draghi acknowledged the crisis wasn’t over, but said the ECB sees no immediate need to make changes to the central bank’s key rates.

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