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Sept. 18 (Bloomberg) -- Nestle SA, the world’s largest food company, said deflation is weighing on European food prices as the economy stagnates.

“Deflation is prevailing in parts of Europe, particularly western Europe,” Laurent Freixe, Nestle’s head of operations for that market, said in an interview at the company’s headquarters in Vevey, Switzerland.

Nestle is continuing to invest in the region as it sees a “positive” outlook over the long term and volume continues to increase, Freixe said. The company is investing in freeze-dried coffee manufacturing in the U.K., and has been expanding production of pet food in Poland and Nescafe Dolce Gusto coffee pods in Germany.

Nestle’s warning on deflation came as the Swiss National Bank vowed today to step up its defense of the franc if needed because of an increased danger of falling prices. Earlier this month, the European Central Bank cut its inflation forecast for the euro zone this year to 0.6 percent. Consumer prices in the euro area climbed 0.3 percent in August from a year earlier, the weakest pace since 2009.

Nestle’s pricing in Europe fell 1.4 percent in the first half as volume rose 2 percent, the company said last month. The maker of KitKat bars and Nespresso coffee had a 4.7 percent revenue gain in the first half, outperforming its main European rivals, Unilever and Danone. The figure excludes acquisitions, divestments and currency shifts.

Deflation raises the risk that consumers will delay spending on the expectation that prices will drop even more, further eroding economic growth.

“Deflation is the ogre that must be fought decisively,” Christine Lagarde, managing director of the International Monetary Fund, said in January.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net To contact the editors responsible for this story: James Boxell at jboxell@bloomberg.net David Risser, Robert Valpuesta

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