Eurozone inflation slumps

Consumer prices in the 17-nation eurozone rose 1.2 percent in April, according to data released by the EU statistics office, Eurostat, on Thursday, which was substantially lower than the 1.7 percent inflation recorded for March.

Inflation dropped because car fuels had been 4.6 percent cheaper than in April 2012, while costs for telecommunications had fallen 5.2 percent over the year, according to Eurostat.

The figure is well within the limit set by the European Central Bank (ECB), which aims for an inflation of close to but fewer than 2 percent in its efforts to maintain price stability in the currency area.

It is also a sign of economic weakness in the eurozone, where most member states are languishing in recession. Due to weak demand and slowing inflation, the ECB found enough economic leeway to lower its key interest rate from 0.75 percent to 0.5 percent last week.

Some analysts already see deflationary pressures mounting, however.

"Deflation is perhaps becoming more of a risk than inflation for the eurozone, although it remains unlikely for now at least," HIS Global Insight analyst Howard Archer told the AFP news agency.

Deflation is bad for an economy because it encourages consumers to postpone spending in hopes their intended purchases will be cheaper in the future. As a result, this slows demand and hurts companies which hold back on capital investments.

uhe/mkg (AFP, Reuters)