Virus impact keeps eurozone inflation negative

BRUSSELS: Eurozone inflation remains doggedly negative, the latest official data showed Thursday, the fifth straight month it has languished in the red because of the coronavirus pandemic.

The Eurostat figures for December gave the 19-nation zone an inflation reading of minus 0.3 percent, the same level as in November. It has been negative since August.

The reading is well below the European Central Bank's inflation target level of just under two percent.

The biggest drag on inflation was energy, which was minus 6.9 percent in December compared with minus 8.3 percent the month before.

The biggest positive component was food, alcohol and tobacco, which rose 1.4 percent, compared with 1.9 percent in November.

Overall prices have been brought down by restrictions imposed in Europe to curb a second wave of the new coronavirus.

Curfews, work-from-home orders, mandatory quarantines and travel restrictions have all taken their toll. And in several euro-using countries they have been hardened even further in late December.

Europe's economy is on the brink of returning to recession after a brief recovery over its mid-year summer period.

Persistently negative inflation is a worry for governments because it can lead to consumers holding off making big-ticket purchases in the expectation that prices will drop later on, creating a spiral that can wound economic activity and employment.

The European Central Bank says that the services sector is bearing the brunt of the economic hit.

In mid-December it estimated that the eurozone economy would show a 7.3 percent contraction in 2020.

The area would return to 3.9 percent growth this year, it said, lower than its previous forecast of 5.0 percent.

The bank has deployed a massive bond-purchase scheme worth 1.85 trillion euros ($2.27 trillion) in an effort to boost activity.