Euro-zone nations post negative inflation rate of 0.1 percent in June as prices shrink

Euro-zone sees falling prices in June

BRUSSELS — Euro-zone nations saw consumer prices fall 0.1 percent in the year to June, the first negative inflation rate in at least a decade, the EU statistics agency said Tuesday.

Eurostat’s preliminary estimate, to be confirmed and explained on July 15, was the first negative rate since the euro single currency was launched in 1999.

Plunging energy and food prices have rapidly depressed inflation from record highs last summer as an economic recession brakes demand from companies and households. In May, inflation had stagnated at 0 percent.

European Central Bank officials say the euro area does not need to worry in the longer term about a deflationary spiral — when falling prices push consumers to put off spending, in turn causing retailers to slash prices — because any fall is likely to be temporary and linked to the drop in the oil price.

Prices can fall for a short time without harming the economy, but full-scale deflation can result in a vicious circle of declining demand, worsening debt and job losses, as happened during the Great Depression of the 1930s.

Both the May and June figures are well below the ECB’s guideline of just under 2 percent.

ECB President Jean-Claude Trichet said last month that lower inflation has allowed the euro’s central bank to slash borrowing costs since October to 1 percent — the lowest level ever — in an effort to stoke growth.

The ECB last year moved slower than the U.S. or Britain to reduce interest rates over worries that it could hike prices.

Trichet said on June 12 that long-term inflation expectations “have been and continue to be firmly anchored at levels consistent with our definition of price stability.”

Inflation soared last year as the oil price hit a record high of $147 a barrel in July on increasing demand from emerging economies such as China. A global recession has forced the price to fall by half to around $73 on Tuesday.