French economy hit by negative inflation

French economy hit by negative inflation
Winter sales in Paris. Photo: AFP
UPDATED: France saw negative inflation in January, according to new data released on Thursday. It's the first time in five years that prices have declined.

Inflation in France, the eurozone's second-biggest economy, was negative in January for the first time in more than five years, the national statistics agency said on Thursday.

Prices declined by 0.4 percent in January compared to the same month last year, INSEE said, noting that France has not seen negative inflation since October 2009.

The data in France followed similar figures earlier this month that showed prices in European powerhouse Germany also declining by 0.4 percent.

The pattern of declining prices in the eurozone is creating a headache for the European Central Bank, which aims to keep inflation "close to, but below" two percent.

Last month, the ECB unveiled a massive trillion-euro bond purchase programme to ward off deflation and end stagnation in the eurozone economy.

The fall in inflation in the eurozone is linked to the dramatic fall in oil prices, resulting in cheaper petrol — a key component of many households' spending.

But it is also linked to a sluggish economy in the 19-nation zone, with weak demand.

Falling prices sounds like it should be positive for consumers and the economy.

But economists fear deflation almost as much as rampant inflation because shoppers tend to put off purchases in the belief they may be cheaper in the future.

This leads to a spiral of ever weaker demand, slowing the economy and pushing up unemployment.