Eurozone inflation falls to its lowest rate in eight months

A fall in oil prices saw eurozone inflation crash to an eight-month low in December as business activity fell to a four-year low, it emerged today.

Inflation for the 19-country area stood at 1.6 per cent in the last month of 2018, down from 1.9 per cent in November and the lowest recorded since April, according to figures released by EU statistics agency Eurostat.

Energy prices were behind the drop, falling almost half from 9.1 per cent inflation in November to just 5.5 per cent last month.

Food, alcohol and tobacco were the next nearest contributors, dropping to 1.8 per cent from 1.9 per cent in November, while the eurozones collective services sector stayed flat at 1.3 per cent inflation.

However, underlying core inflation, which ignores volatile energy prices, remained at one per cent, suggesting the European Central Bank (ECB) has not managed to push up inflation over the course of the year.

The drop could give the ECB pause for thought before raising interest rates, with the ECB aiming for an inflation rate of just under two per cent.

Nick Kilbey, sales trader at Foenix Partners, said: “[ECB president Mario] Draghi and co may need to re-evaluate their script of monetary policy normalisation expected for Q4 of 2019.

“This lacklustre print and growing concerns around the blocs sluggish economic growth will have kicked 2019 off with a headache for the central bank.”

Meanwhile, business activity in the eurozone staggered to a four-year low in December, according to a closely followed measure.

Economic output across the bloc fell to 51.1 last month, down from 52.7 in November, the IHS Markit eurozone composite purchasing managers index showed.

The blocs economy is drifting closer to the 50 measure that indicates no growth on the index.

Chris Williamson, chief business economist at IHS Markit, said: “The eurozone economy moved down another gear at the end of 2018, with growth down considerably from the elevated rates at the start of the year.

“Importantly, with expectations of output dropping to the lowest for over four years, companies are not anticipating any imminent revival in demand. Worries reflect multiple headwinds from trade wars, Brexit, heightened political uncertainty, financial market volatility and slower global economic growth.”

Just yesterday the ECB confirmed that eurozone lending is increasing despite signs of the blocs economy entering a slowdown.

Both corporate loans and household loans grew towards the end of 2018, though eurozone investor confidence sank to a four-year low in December at the prospect of increasing global trade tensions.

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