The euro zone has fallen into deflation for the first time since 2009. As David Pollard reports, the worse than expected consumer prices could trigger the ECB's government bond buying programme.
Asset markets may have seen it coming, but it could still be a shock to the European consumer. Inflation is now in negative territory - otherwise known as deflation. Latest data shows the first minus reading for price changes in the euro zone for over five years. A worrying flashback to a decades long-struggle by one of Asia's economic giants. BGC market strategist, Mike Ingram. (SOUNDBITE) (English) MIKE INGRAM, MARKET STRATEGIST, BGC PARTNERS, SAYING: ''It's absolutely critical, and if we want evidence of that you only have to look at what's been going on in Japan over the last 20 plus years. Yes, core inflation rates in the euro zone might have ticked up slightly, but it's the headline rate of inflation that the person on the street actually cares about and what's going to frame consumer behaviour going forward.'' There was a dip in the euro to a new nine-year low when the numbers were announced. Otherwise asset markets largely shrugged off the fact that with a drop of -0.2% in December, inflation fell even more than expected. Instead, focusing on a positive 0.7% core rate - that's with energy and food components stripped out. But aware even so of the impact the news could have, especially with oil prices on the slide. Baader Bank's Robert Halver. (SOUNDBITE) (German) CAPITAL MARKET ANALYST FROM BAADER BANK, ROBERT HALVER, SAYING: ''If the oil price continues to drop, it's also bad for inflation. Inflation is dropping more and more and for January, we can already count on Germany's inflation rate being below zero. Deflation is the worst that can happen: deflation means consumers no longer consume, hoping that tomorrow, products will be cheaper." With that prospect, pressure is piling on the European Central Bank to pull the trigger on a much-hoped-for programme of sovereign bond buying, or QE. (SOUNDBITE) (English) MIKE INGRAM, MARKET STRATEGIST, BGC PARTNERS, SAYING: ''They have to come up with some very meaningful quantitative easing in their January 22nd meeting and I also think that the fiscal side of the equation, in as much as Germany will ever sign off on that, also has to be addressed. But I have a horrible feeling that whatever they come up with, it's going to be too little and far too late.'' Others hope low oil prices will boost consumers, a low euro will boost euro zone exporters. And with other new data showing unemployment in Italy at a record high, it's something that, for the ECB, couldn't happen soon enough.