Prices in the 16-nation euro area dropped 0.1 percent from a year earlier, the first annual decline since the data were first compiled in 1996, the European Union statistics office in Luxembourg said today. The core rate of inflation, which excludes volatile energy and food prices, eased to 1.4 percent from 1.5 percent.
Carrefour SA, Europe’s largest retailer, Royal Ahold NV and Tesco Plc are cutting prices to revive demand from consumers threatened by rising job losses. European Central Bank policy makers have downplayed the threat of deflation, blaming negative inflation on the drop in oil prices from a record last year and pointing to the core rate.
Energy prices dropped 11.8 percent in June from a year earlier and food prices fell 0.2 percent, today’s report showed. From May, overall prices rose 0.2 percent.
Stores are under pressure to lower prices to boost sales, squeezing profit margins. European retail sales declined in June for a 13th month, the Bloomberg purchasing managers index showed. The economy may shrink 4.8 percent this year and 0.3 percent in 2010, the International Monetary Fund has forecast.
Inflation in Germany, Europe’s largest economy, was flat in June, while prices are already falling in Ireland, Spain, Portugal and Austria, today’s report showed. The ECB, which targets an inflation rate of just under 2 percent, forecasts that euro-area consumer-price growth will average 0.3 percent this year and 1 percent in 2010.