1st August 2014

Eurozone inflation at 0.4%

According to a quick estimate of Eurostat published on 31 July, eurozone inflation in July 2014 fell to 0.4%. That is a 0.1 percentage points decrease compared to June. The low levels were due to falling consumer prices in energy and also food, alcohol and tobacco. On the other hand, a slight increase in prices was seen in services. Non-energy industrial goods were sold at the same prices as last year. The extremely low levels of inflation raise concerns, that economic recovery of the eurozone might be hampered. The already high pressure on the ECB is about to increase even more. The current levels of inflation are far below its own target of “below, but close to 2%”. To increase inflation, the ECB announced some very unusual measures in June. The targeted longer-term refinancing operations, which will provide cheap loans to banks up to €400 billion for a period of two years, will only come into practice in September and their effects might be seen only in Spring next year. The other unconventional measure was a negative interest rate on deposits, which should in theory encourage banks not to deposit their money, but provide it to the real economy instead. Neither this measure had a measurable impact so far.

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Members of the American Chamber of Commerce in the Czech Republic