Graph of the week: Inflation in the EU

Annual inflation in the euro area fell to just 0.3% last month, its lowest level since 2009 but the situation varies considerably from country to country.

Source: Eurostat

Inflation refers to increases in the general level of prices. When inflation is high, the increase in prices hurts living standards because people can afford less with their wages.

Falling prices, or deflation, however, can also have a negative impact on the economy because the repayment of debt becomes more expensive and companies and consumers are encouraged to delay purchases, as they expect prices to be cheaper in the future. 

Inflation in the EU: July 2014

Source: Eurostat

The European Commission’s spring 2014 forecast sees inflation in the euro area at 0.8% this year and 1.2% in 2015.

For an analysis of trends in monetary policy check out this recent ECFIN Economic Brief.