Page last updated at 10:56 GMT, Wednesday, 16 December 2009

Eurozone confirms inflation return

Euro symbol
Price rises in the eurozone confirm a recovering economy

November's eurozone annual inflation figure was the first positive rate for seven months, figures have confirmed.

The European Union's Eurostat body said consumer prices in the eurozone in the year to November rose by 0.5%.

The positive figure, which was slightly down on an initial estimate of 0.6%, was widely expected by economists.

But the return to price rises - which is largely because of a rise in energy costs - is being seen as welcome news for the European Central Bank.

It suggests the currency bloc may be able to avoid falling into deflation without employing yet more stimulus measures.

Encouraging signs

Deflation is bad for an economy because consumers put off buying goods as they wait for prices to fall further - which can lead to a vicious circle of decreased spending and increased unemployment.

Even more encouraging... the rate of job losses eased to the weakest for 14 months
Chris Williamson, Markit chief economist

Earlier on Wednesday, other figures showed private sector business activity in both manufacturing and services increased in December at the fastest rate for two years.

The purchasing managers' index (PMI) for the 16 countries using the single currency, rose to 54.2 points from 53.7 points in November, its highest reading since October 2007.

Chris Williamson, chief economist at Marit, who compiled the figures, said the data suggested the eurozone's recovery from recession would continue.

"The flash PMI suggests that euro area GDP will have risen for a second successive quarter in the fourth quarter," he said.

"Even more encouraging... the rate of job losses eased to the weakest for 14 months."

Inflation rose among the largest economies of the eurozone, returning to positive territory in France, Germany and Spain and accelerating in Italy.

Across the full 27-nation European Union, inflation was at 1%, up from 0.5% in October.

Despite the better economic news, economists widely expect inflation to remain below the European Central Bank's target of just below 2%.

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