“The rise in consumer prices slowed across the world’s largest economies for a second straight month in January, driven by falling inflation rates in several large developing economies.
The low level of inflation will worry central bankers in those developed economies that are witnessing a prolonged period of sluggish price rises. In the euro zone, the annual rate of inflation stands at 0.8%, well below the European Central Bank’s target of just below 2.0%.
The ECB’s governing council meets Thursday and faces some pressure to provide further stimulus to boost growth and ensure inflation returns to its target over coming years.
The Organization for Economic Cooperation and Development said Tuesday the annual rate of inflation in its 34 developed-country members rose to 1.7% from 1.6% in December, while in the Group of 20 leading industrial and developing nations it fell to 2.6% from 2.9%.
Weaker global price rises were the result of declines in the annual rate of inflation in India, Indonesia, Russia and Brazil. The annual rate of inflation was steady in China and increased in South Africa.
When inflation is low, companies, households and even governments have a harder time cutting their debt loads, a particular problem for a number of highly indebted nations in the euro zone. Businesses can see their profit margins squeezed, lessening their willingness to invest and hire workers.
When prices start to fall, consumers can postpone purchases in the expectation that they will get better value for their money in the future. That can, in turn, weaken economic activity and create further deflationary pressures. Following the difficulties Japan has experienced in getting out of its long period of deflation, central banks in other countries are anxious to avoid a similar struggle.
Separate figures released by European Union’s statistics agency on Tuesday showed prices of goods leaving the euro zone’s factory gates fell at the fastest annual rate since the end of 2009 in January, adding to concerns that the currency area faces a period of low inflation that may hinder its recovery.
The steepening decline in producer prices suggests the inflation rate is unlikely to pick up significantly in the coming months. Speaking in Bilbao, Spain on Monday, the head of the International Monetary Fund warned that a prolonged period of low inflation in the euro zone may derail the currency area’s fragile economic recovery, and said that the threat must be countered with additional monetary stimulus…..”
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