Deflation is already a reality for a quarter of prices in the Eurozone

The European Central Bank (ECB) has repeatedly insisted that it does not see deflation as likely for the Eurozone - but new research indicates that falling consumer prices are already a reality for almost a quarter of items in the basket used by the ECB to measure inflation.

Jefferies International tracks the items included in the index, revealing that prices are already falling for 24.6 per cent of the goods, up from 19.9 per cent in February. The equivalent figure for core inflation, which strips out the most volatile goods, rose to 18.6 per cent. It’s the highest recorded since 2010, when inflation was returning after a price shock.

But unlike the impact of the financial crisis, when disinflation was driven by a smaller proportion of items falling more significantly, below-target inflation is now broad-based. Prices are rising by less than one per cent for almost half of the items in the Eurozone index, something which hasn’t happened before in the 21st century at all.
More than a quarter of EU countries are also already recording deflation, with Sweden the latest on the list. Jefferies’ chart for Spain is particularly sobering, showing how low inflation can rapidly take hold and give way to a falling price level.

Jefferies is keen to see the April data to see whether the disinflation trend continues, with a print of initial data out next Wednesday, giving a major indication as to whether the European Central Bank will attempt to revive the region’s price level with quantitative easing or negative interest rates.