* Retail sales fall 1.0 percent in December yr-on-yr
* Sales also fall 1.6 percent compared to November
* Falling demand raises concerns about deflation
By Robin Emmott
BRUSSELS, Feb 5 The euro zone's Christmas
shopping season was a sore disappointment in December as demand
for retail goods fell sharply despite expectations of a rise,
adding to the risk of deflation for the currency bloc.
Retail sales in the 17 countries sharing the euro fell 1
percent in the month compared to the same period a year ago, the
EU's statistics office Eurostat said on Wednesday, while
economists polled by Reuters expected a 1.5 percent increase.
Compared to November last year, December's figures were also
worse than expected, showing a 1.6 percent fall when economists
forecast just a 0.5 percent dip.
Despite signs of a recovery, the sinking demand for consumer
goods follows a surprise fall in euro zone inflation in January
to 0.7 percent, far below the European Central Bank's target of
just under 2 percent and near four-year lows.
Consumers are the weak link in the euro zone's rebound from
its worst ever recession, reluctant to spend at a time of near
record unemployment and which could prompt shops to lower prices
to entice people back to the high street.
That risks a viscous cycle where households continue to hold
back for bargains, forcing businesses to lower prices even more
and increasing the chances of deflation.
Expectations are growing among economists for more ECB
action, even if the euro zone is still far from Japan's
deflationary spiral of the 1990s. Action includes a possible
rate cut to zero when the Governing Council meets on Thursday.
Beyond cutting interest rates, the ECB has a range of other
policy options it could use, including offering banks another
batch of long-term loans or a U.S.-style asset buying programme
to tackle the deflation risk.
However, ECB policymakers focus on the medium-term outlook
rather than price swings and some economists see no need to act.
"Some expect a move on rates, some expect a move on
liquidity and some expect no move at all, including us," said
Greg Fuzesi at JP Morgan. "It is a very close call, but we would
emphasize that the debate centres on options that would have
only a modest impact on the economy."
Still, for consumers the sinking sales of goods ranging from
food to medical goods across the euro zone reflects the hangover
from the bloc's debt and banking crisis.
Even spending on food and drink was lower this past
Christmas than it was in 2012, a sign that families may have
used up much of their savings that saw them through the crisis.
Internet shopping continues to rise as people seek bargains
online, while spending fell across the board, including on fuel.
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(Reporting by Robin Emmott)