Eurozone exits deflation

According to latest eurozone inflation figures released by Eurostat on Thursday, consumer prices in April remained unchanged from those reported in the same month a year ago.

The European Union's statistics office said energy costs pushed up in the month, driving prices up from the 0.1 percent fall recorded in March, and ending a period of four months of consecutive declines.

Zero percent inflation is likely to be welcome news for the European Central Bank (ECB), which resorted to massive fiscal stimulus in recent month to boost growth and prevent a longer period of falling prices, known as deflation.

While deflation may sound good in theory, it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line. That, in turn, hurts producers and holds back their expansion and hiring plans, which is bad news for the economy.

The April inflation figure still remains far below the ECB's target of 2 percent which it considers as price stability.

ECB claims praise

Following the latest inflation data, the ECB said in a statement Thursday that its raft of different policy measures appeared to have banished the specter of deflation in the 19-country currency bloc.

"After having reached low levels in mid-January, longer-term inflation expectations in the euro area have recovered. The decline observed over the previous two years has thus come to a halt," the ECB wrote in its latest economic bulletin.

In March, the ECB launched a massive stimulus program aimed at pumping about 1.14 trillion euros ($1.3 trillion) into financial markets until next year by buying eurozone sovereign bonds and other assets. Coupled with historically low interest rates of 0.15 percent, the central bank's cash injection seeks to support a nascent upswing and inflation in the currency area.

QE debate unfolding

The ECB and a number of economists expect eurozone prices to actually start climbing again in the second half of 2015 amid stabilizing oil prices after a 50-percent slump since June 2014.

Indeed some are already questioning whether the ECB will need to carry out its planned asset purchases - also known as quantitative easing (QE) - all the way through to September 2016.

But Ralph Solveen, economist at Commerzbank, warned that it was "too early to say" if the ECB's QE stimulus program was already having an effect.

"Whether it's the positive things such as the better economic data we've had recently or low inflation. QE can't work that fast," he told the news agency Reuters.

And Teunis Brosens, ING economist, told the same news agency that prices in the service sector fell 0.9 percent - an all-time low, and indication that "we can't close the book on deflationary pressures yet."

uhe/sri (AP, Reuters, dpa, AFP)