Eurozone inflation remains stubbornly negative, the latest official data showed on Thursday.

Eurostat figures for December show that the 19-nation currency bloc registered an inflation rate of -0.3 per cent, the same level as in November. It was the fifth consecutive month that inflation languished in negative territory. The reading is well below the European Central Bank’s inflation target level of just under two per cent.

The biggest drag on inflation were energy prices, which fell by 6.9 per cent in December, compared with a fall of 8.3 per cent the month before.

The biggest positive component was food, alcohol and tobacco, which rose by 1.4 per cent, compared with a 1.9 per cent rise in November.

Persistently negative inflation is a major worry for policymakers at it can lead to a downward spiral that can severely hinder economic activity and employment.

Meanwhile, in Germany, factory orders posted an unexpected increase in November, as Europe’s biggest manufacturing sector withstood a resurgence of COVID-19 cases.

Orders rose by 2.3 per cent from a month earlier, blowing past economists’ mean forecast for a 0.5 per cent decline, as exports to other eurozone countries surged. German statistics agency Destatis said that compared with the same month last year, orders rose by 6.3 per cent, beating an average estimate of a 2.1 per cent increase.

Export orders to other EU markets rose by 6.1 per cent and domestic orders increased by 1.6 per cent. Non-eurozone export orders rose by 0.9 per cent.

Germany and many markets for manufactured goods increased COVID-19 restrictions in November in an effort to stem rising infections.

Finally, in the US, following a two-day session on December 15-16, the Federal Open Market Committee unanimously voted to keep interest rates anchored near zero and strengthened its commitment to the bond buying programme, pledging to maintain a $120 billion monthly pace of purchases until there is “substantial further progress” toward its employment and inflation goals.

Policymakers agreed that markets would get plenty of notice before asset purchases were curtailed. The last time the Fed cut back on its asset purchases, it triggered a period of market turmoil that came to be known as “taper tantrum” that officials want to avoid this time.

This report was compiled by Bank of Valletta for general information purposes only.

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