ROBERT SIEGEL, HOST:
The euro, already at a nine-year low against the dollar, slipped a bit more today. The drop came after a report that consumer prices actually fell in December from the previous December. Falling energy prices were the biggest factor. But there's no question the European economy remains weak. And that is putting more pressure on the European Central Bank to do something bold to stimulate growth. NPR's Jim Zarroli reports.
JIM ZARROLI, BYLINE: The European Central Bank said that consumer prices in the Eurozone fell two-tenths of a percentage point in December, compared to the year before. It was the first time prices had fallen since the depths of the financial crisis in 2009. The report said much of the drop could be attributed to the dramatic worldwide decline in oil and gas prices. Ben May is senior Eurozone economist at Oxford Economics.
BEN MAY: This is all about the fall in the oil price, really. And in that respect, I guess you could argue that this is a positive development.
ZARROLI: May said lower energy prices will give European households more money to spend on other things, so it could help stimulate growth. But even when energy costs were factored out, inflation was still very low, lower than most economists think is healthy. And it once again raises the frightening process of deflation, a broad drop in wages and asset values. That hasn't happened so far, but Gregory Claeys of the research firm Bruegel says Europe is suffering from an ongoing economic stagnation, and the low inflation report is a reflection of that.
GREGORY CLAEYS: I think it's not only in the countries that have been troubled, like, Greece, Spain or Portugal, but it's now a move that you observe in most of the country of the Eurozone, like France, also.
ZARROLI: Claeys says even wealthy countries like Germany and the Netherlands are feeling the pain of the region's slowing economy.
CLAEYS: So this also explains why fundamentally we see this falling inflation, which is now near zero percent.
ZARROLI: Today's report puts new pressure on the European Central Bank to act. The ECB has been deeply concerned about inflation over the years and it's been criticized for imposing strict austerity measures on weak economies, such as Greece. In the process, it's been slow to pursue the kinds of bold measures taken by the U.S. Federal Reserve and the Bank of England to stimulate growth. In recent months that's begun to change, and European officials have taken some steps to encourage more bank lending, for instance. But ECB President Mario Draghi hinted last month that the ECB is ready to go further.
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MARIO DRAGHI: It's both time to look at what the effect these measures are having and will have, and also time to be prepared to further action if needed.
ZARROLI: In fact, the ECB will meet on January 22, and there's widespread expectation that it's ready to take up the kinds of large-scale asset purchases pursued by the U.S. Federal Reserve, measures that go by the name quantitative easing.
Again, Ben May.
MAY: If you look at all of the comments from various ECB members over recent weeks, it pretty much guarantees that they'll do something. If they did nothing, that would be a major surprise to markets and have some quite nasty consequences.
ZARROLI: If nothing else, today's report drives home the point that the threat of higher inflation is a distant one. That means European officials have more room to experiment, to look for ways to bring back the kind of growth that has eluded the region for so long.
Jim Zarroli, NPR News. Transcript provided by NPR, Copyright NPR.
