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Friday, November 28, 2014

EUROPE'S PLUNGE INTO DEFLATION IS COMING

Eurozone inflation figures just released put the rate at 0.3% in November, down from October's 0.4% and in line with estimates. With the recent impact of oil prices, that means deflation isn't just a possibility for the eurozone: markets are now suggesting it's the most likely outcome in a few months' time. Analysts had forecast that that the rate would come in at 0.3% again, though some suggested it could fall as low as 02% The ECB currently targets 2% inflation, but that target was last reached in the summer of 2012. These numbers increase the chance that the ECB will have to ease policy: that might mean buying sovereign bonds (QE). Economists at Credit Suisse and BNP Paribas believe this announcement could come as early as December, while others think it will come at the beginning of next year.  With oil prices falling, this is likely not the lowest inflation we're going to see: Frederik Ducrozet at Credit Agricole notes that markets are now pricing in mild deflation for the beginning of next year.  Jonathan Loynes at Capital Economics agreed in a note: "We now expect the headline inflation rate to drop below zero at least briefly over the next six months and there is a clear danger of a more prolonged bout of falling prices." Several European countries are already seeing deflation: Spain, Poland, Hungary, Bulgaria and Greece all had negative rates of inflation in October.  When looking at inflation by each sector, it's easy to see how incredibly heavy the pressure on prices from energy has been. Join the conversation about this story »


READ THE ORIGINAL POST AT www.businessinsider.com