Eurozone Factory Prices Highlight Deflation Risk

Fears of deflation persist in Europe, despite the European Central Banks's vow to successfully fight it.

In January, many of Europe's firms reported a slowdown in new orders and new export business. The Manufacturing PMI in Germany is at a three-month low, and stands at a five-month low in France.

Read this excerpt from a Feb. 1 Bloomberg article:

In its monthly manufacturing report, Markit Economics said price pressures "remained on the downside" and output charges fell for a fifth month. In addition, all countries in its survey reported declines, the first time that's happened in 11 months.

President Mario Draghi said the European Central Bank's stimulus policies will be reviewed in March as the region's inflation rate may drop below zero again because of oil's slump. Price growth has been slower than the central bank's goal of just under 2 percent for almost three years.

"The euro zone's manufacturing economy missed a beat at the start of the year," said Chris Williamson, chief economist at Markit. "If the slowdown in business activity wasn't enough to worry policy makers, prices charged by producers fell at the fastest rate for a year to spur further concern about deflation becoming ingrained."

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