Eurozone Inflation Revised Down to 0.1 Percent

16 Sep 2015 | Author: | No comments yet »

Euro zone inflation grinds even slower in August, raises expectations of more QE.

LONDON – Inflation across the 19-country eurozone was revised down to 0.1 per cent in the year to August, in a development that’s likely to renew concern that the region could see another bout of falling prices and prompt more stimulus measures from the European Central Bank. The ECB has been trying to ward off a sustained period of deflation and bolster the eurozone’s growth through its €60bn a month quantitative easing programme. Figures released Wednesday by the European Union’s statistics agency showed that the revision in consumer price inflation from the initial estimate of 0.2 per cent was largely due to a sharp drop in energy prices reflecting weakness in the global price of oil.

But the central bank was forced to cut its inflation forecasts at its latest meeting earlier this month, citing the impact of the stronger euro and weak oil prices. The problem lies when prices fall consistently over time for a range of goods — as opposed to temporary declines prompted by, say, a fall in prices at the pump, which can give economic activity a boost. Core inflation, a measure that excludes volatile energy and unprocessed food prices, stood at 0.3 per cent month-on-month and 0.9 per cent year-on-year in August, the same as previously estimated and unchanged from July. Vice President Vitor Constancio said in an interview published Wednesday that the ECB’s program is still much smaller than that of other central banks. Eurostat said that among the items with the biggest impact on the overall year-on-year reading, cheaper transport fuel subtracted 0.55 point, while less expensive heating oil took away another 0.25 point.

It can lead to years of economic stagnation, as in Japan over the past two decades, or at worst, into something more pernicious, such as the Great Depression of the 1930s. As part of that stimulus, the ECB is pumping 60 billion euros a month in newly printed money into the eurozone economy by buying government and corporate bonds.

ECB President Mario Draghi hinted this month that the bank is ready to give the eurozone a bigger dose of stimulus, which could involve buying more bonds or extending the length of the program.

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