At a time when deflation talks are in vogue, the euro zone December PPI released this morning will catch more than usual interest ahead this week’s ECB meeting. In the event, euro zone December producer prices were reported down for the fifth consecutive month and by a larger than expected 1.3% on the month. This took the yearly rate down to 1.8% (an August 2007 low) from 3.3% in November and this compares to a 9.2% annualized rate in July 2008. The pace of deceleration in inflation is striking. Lower commodity prices have obviously brought a significant downward bias on euro zone PPI (see energy prices down 3.7% on the month in December) over the past few months and this will most likely continue this year, with spillover effects onto the consumer price index. There are several interpretations as to what deflation really is, but we usually refer to negative producer prices, negative consumer prices, negative wage inflation, contracting money supply and a contracting economy. Fortunately, the euro zone does not tick all the boxes at this stage, but some may be tempted to conclude that deflation is in the air and today’s report may reinforce this perception. This can not be too helpful for the euro.