Portugal, Greece, Latvia highlight eurozone deflation risk

(LISBON) - Consumer prices rose by an average of 0.3 percent in 2013 in Portugal and fell by 0.9 percent in Greece, according to data released Monday, showing the risk of deflation in the eurozone periphery remains real.

In Baltic state Latvia, inflation was zero in 2013 compared with price levels in 2012, official data in Riga showed.

Latvia became the eurozone's 18th member on January 1 this year.

Portugal's INE statistics agency said that annual consumer price inflation picked up to 0.2 percent in December, from the -0.2 percent registered in November.

It said the disinflation trend in 2013 was mostly due to a 0.7-percent drop in energy prices.

In Greece, annual inflation came in at -1.7 percent in December, after hitting -2.9 percent in November, according to EL.STAT.

Last week, European Central Bank chief Mario Draghi denied that the 18 countries that share the euro were facing possible deflation -- a vicious circle of falling prices -- even if inflation in the region was expected to remain well below target for the next two years.

The ECB aims for annual inflation of just below 2.0 percent.

Eurozone inflation fell to 0.8 percent in December from 0.9 percent in November, according to data released by Eurostat earlier this month. Core inflation -- which excludes food, alcoholic drinks and tobacco -- fell to a record low 0.7 percent.

Deflation -- falling prices in real terms -- can discourage consumers from buying goods in the expectation that if they wait, they will become cheaper.

That in turn weakens the economy by reducing demand. Companies reduce output accordingly, hitting employment, thereby setting off a downward spiral.

For eurozone countries, any economic slowdown and fall in tax revenue would make it more difficult for them to handle already heavy debt loads.

In eastern and central Europe, which analysts consider to form a region they call emerging Europe whether or not the countries included are in the EU/eurozone, strong disinflation was a general trend throughout 2013.

In Latvia, consumer prices were flat on an annual basis in 2013, official data showed.

"Average annual inflation, compared to the previous 12 months, remains unchanged," Statistics Latvia said, noting that "in 2012, average annual inflation grew by 2.3 percent".

But the Baltic state clocked deflation on the basis that prices dropped by 0.4 percent in December 2013 from the level in December 2012.

Compared with November, consumer prices in December were unchanged.

"I don't see inflation in Latvia jumping above 2.0 percent this year, even with more rapid price increases in the second half of 2014," Nordea bank economist Andris Strazds told AFP.

Northern Baltic neighbour Estonia joined the eurozone in 2011 while Lithuania to the south is eyeing 2015 as its target date.

Latvia suffered a major recession in 2008-9 after being hit hard by the global financial crisis. It needed a 7.5-billion-euro ($10-billion) bailout from global lenders including the EU and International Monetary Fund.

Drastic austerity cuts ensured that Latvia met eurozone entry targets on deficits, debt and inflation.

It bounced back to top EU growth charts with two consecutive years of five percent growth in 2011-2012. A four -ercent expansion is expected for 2013.

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