Portuguese prices drop official 0.2%, amid deflation worry

Consumer prices fell by 0.2 percent in Portugal in November, the INE national statistics agency said on Wednesday, amid concern that deflation could dent the recovery of some eurozone countries.

The 0.2-percent drop in prices from October and November 2012 was mostly due to lower fuel costs, according to INE.

Using the Harmonised Index of Consumer Prices (HICP), the European Central Bank’s inflation yardstick, prices dropped by 0.3 percent from October but were up by 0.1 percent from November 2012.

Central banks and policymakers regard deflation, meaning a period of falling prices, with deep concern as it can set in motion a vicious spiral of falling demand, rising unemployment and a further fall in demand.

Concerns about possible deflation and the strength of the euro, which also has an effect of lowering prices, led the European Central Bank to cut its key rate to a record low of 0.25 percent in November.

Portugal, which is applying an austerity programme in exchange for a 78 billion euro ($107 billion) bailout from the European Union and International Monetary Fund, forecasts 0.6 percent inflation this year and 1.0 percent in 2014.

The Bank of Portugal expects a return to growth next year, of 0.8 percent, with the economy to contract by 1.5 percent this year.