Eurozone slips into deflation

Inflation rate across the Eurozone fell to an annual rate of negative 0.2 percent in December, as currently markets are expecting the European Central Bank to announce a quantitative easing (QE) program at their next meeting on January 22, an economic report said here on Sunday.
The Euro extended its losses last week, reaching a nine-year low of 1.1761 against the US Dollar. A fall in German industrial orders and a drop in the Eurozone consumer inflation expectations, alongside concerns that a Greek general election on Jan 25 would lead to a standoff between Germany and Athens over the austerity imposed on Greece, showed the report compiled by the National Bank of Kuwait (NBK).
The dollar Index rose last week to its highest level in more than 9-1/2 years against a basket of currencies, helped by the Federal Reserve officials' mostly upbeat comments on the outlook for the US economy, alongside the prospect of raising interest rates, although the timing remains unclear. Minutes of the December meeting offered no new clues, although most expect the US Federal Reserve to act around mid-year, it said.
The US trade deficit dropped to an 11-month low in November as declining oil prices limited the import bill. The Commerce Department said last week that the trade gap narrowed 7.7 percent to USD 39 billion, the smallest since December 2013, the report indicated.
At its December FOMC policy-setting meeting last week, the Federal Reserve took a close look at the plunging world oil prices and the deflationary situation across Europe and decided that those negative trends would not undo that underlying US strength. However, the minutes did not offer any clues when the Fed would start raising the interest rates.
In the UK, the Bank of England kept interest rates at a record low, as the country's economy continues to hold up relatively well compared to its Eurozone partners. The central bank held its benchmark base rate at 0.5 percent, and maintained its asset purchase target at 375 billion pounds.
The bank has been unenthusiastic to increase rates while wage growth in the UK remained under pressure, but data released in December showed that wages grew in the three months to October. While the UK economy looks relatively strong, the outlook for its European counterparts is not so healthy-looking, the report concluded.