Eurozone Inflation Drops below Zero as Prices Fall by 0.1%

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Despite a positive start to the year, Eurozone inflation has now fallen below zero as prices fell by 0.1%. The figure is representative of the downturn in the economy which has been brought about by troubles such as those in Greece and China. 

It seems that there is no light at the end of the tunnel for Europe as interest rates are only rumored to go up next year which will cause such troubles as those in Greece and China to snowball.

Inflation in the Eurozone is a measure of price movements within a region. It gives a picture of the health of an economy and in many cases is used to encourage spending in one area or another. 

Inflation can be measured using statistical techniques such as consumer price indices which give an idea about inflation based on prices paid by consumers for goods and services. When inflation is high, there is said to be upward pressure on prices in an economy. 

A positive number indicates price rises with a minus number showing price falls. These numbers are the basis of what is known as either deflation or inflation which is referred to as the rate of inflation. It refers to the percentage rate at which prices as a whole are rising or falling and is calculated as a percentage increase over time. 

For example, 5% inflation means that prices have increased by 5% since a particular date.

Inflation is a key indicator in any economy because it affects the value of currency which impacts national GDP and consumer spending. It can also have an impact on the business cycle. 

If growth is too slow, there’s a risk of deflation which can lead to lower growth rates or even recession whereas very high growth rates might be seen as inflationary with the associated pressure on resources and supply-side constraints.

Greece has recently elected Alexis Tsipras as its prime minister after his leftist Syriza party won the election in January with a promise to end austerity. Since then Greece has been locked in talks with its creditors about getting bailout funds without having to follow the conditions of austerity that were previously agreed upon by previous Greek governments.

Greece is not the only country in trouble, China is trying to transition from an economy based on foreign exports to one based on domestic consumption. The devaluation of the Chinese Yuan has had an impact on European exports, for example, luxury car sales have dropped.

Euro zone inflation fell by 0.1% in March with prices falling further for food and services although energy costs rose. That figure is lower than the forecast of 0.2%, causing concern for the Euro zone economy with already low growth rates. 

The European Central Bank has a target of just under 2% inflation and it is thought that they can only go so far in their money printing activities before there is asset inflation with negative consequences for individuals and companies, which would have an impact on deposits, pensions, and investments. 

Inflation is also linked to interest rates with higher inflation meaning that central banks are likely to increase them which has an impact on mortgages and savings rates. With inflation below zero, it is thought there will be no chance of increasing interest rates for at least another year.

The figure represents the downturn in the Euro zone economy which has been brought about by troubles such as those in Greece and China. 

It seems that there is no light at the end of the tunnel for Europe as interest rates are only rumored to go up next year which will cause such troubles as those in Greece and China to snowball.

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