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Fears of European deflation mount

Thursday, January 16 12:45:31

Euro zone inflation slowed in December, the European Union's statistics office confirmed today, in what the European Central Bank attributed last week to a one-off change in the method of calculating price growth in Germany.

Price pressures are weak, enough, however, to prompt concern at the International Monetary Fund about deflation.

Consumer prices in 17 countries sharing the euro last year rose 0.3 percent on the month, putting the annual inflation rate at 0.8 percent, down from 0.9 percent in November, but a tad above 0.7 percent in October.

The ECB, which wants to keep inflation below-but-close-to 2 percent over the medium term, expects a prolonged period of low inflation but sees no immediate risk of deflation - or actual falling prices.

"We were all aware that the decline in the inflation rate in December ...(It) was expected, and it was caused by a technical adjustment in the statistics of the services inflation in Germany," ECB President Mario Draghi said last week.

"(This) basically produced a much flatter seasonal adjustment and it meant that the December data came out lower.... But fortunately this was a one-off event, so that the January data will not be distorted by this," he said.

The International Monetary Fund, however, said on Wednesday it expected global growth to pick up this year but flagged deflation as a rising risk. "If inflation is the genie, then deflation is the ogre that must be fought decisively," IMF chief Christine Lagarde told the National Press Club in Washington.