FOREX-Dollar gets jobs-data lift as euro sags

30 Sep 2015 | Author: | No comments yet »

Eurozone consumer prices falling once again due to cheap oil.

Brussels/Frankfurt: Eurozone inflation turned negative again in September as oil prices tumbled, raising pressure on the European Central Bank to beef up its asset purchases to kick start anaemic price growth.

Though anticipated, the negative headline rate is likely to be a disappointment to policymakers at the ECB who this year launched a 1.1 trillion euro ($1.2 trillion) stimulus program in the hope of getting inflation back toward target. Prices fell by 0.1 per cent on an annual basis, the first time since March that inflation has dipped below zero, missing analysts’ expectations for a zero reading after August’s 0.1 per cent increase. The 0.1 percent annual decline reported by Eurostat, the EU’s statistics office, was widely anticipated following the recent drop in global oil prices. The ECB, which is pursuing a target of almost two percent, is buying 60 billion euros of assets each month to boost prices but says it may have to increase or extend its quantitative easing scheme.

The statistics agency said energy prices in the eurozone were a whopping 8.9 percent lower in September than the year before, more than the 7.2 percent drag registered in August. The impact of energy costs is evident in the fact that, when they are stripped out of the calculations, consumer prices were 1 percent in the year to September. Long term inflation expectations have dropped to their lowest since February, before the ECB’s asset purchases started, as China’s economic slowdown, the commodity rout and paltry Eurozone lending growth reinforce pessimistic predictions. Falling prices sound good in principle and can be, if temporary — many economists think the current period of weak or negative inflation is a boon to economic activity since it’s largely due to weak oil prices. It may argue for more time to assess the inflation and growth outlook, perhaps until the US Federal Reserve finally commits to its first rate hike in almost a decade and the ECB staff presents new economic forecasts in December.

It weakened the euro, making imports pricier, and it helped boost the economy by making the region’s exports more competitive and keeping borrowing rates low. Falling prices over a long period of time can prompt consumers to delay spending in hopes of bargains down the line and make businesses reluctant to invest and innovate. Weidmann said that just in Germany, the Eurozone’s biggest economy, consumers and businesses will save 25 billion euros on lower energy costs, worth about 1 per cent of GDP, keeping the recovery on track even if emerging markets continue to drag. Repeating his view that asset buys should only be used in an emergency, he also warned that abundant cheap credit — a side-effect of ultra loose monetary policy — is keeping unviable companies alive, posing risks to competitiveness. Slovenian central bank chief Bostjan Jazbec has meanwhile said that even talk of modifying QE is a “long way” into the future as the scheme was actually generating positive results.

Central bankers have also argued that there are limits to how much monetary policy can achieve and that trying to push up inflation while the global commodity index has dropped by a third in 15 months overburdens monetary policy. Eurostat said Wednesday that unemployment across the region fell by a modest 1,000 in August to 17.60 million, which left the jobless rate at 11 percent. Bill Adams, senior international economist at PNC Financial Services Group, said the drop in consumer prices won’t be enough to prompt the ECB to take further action just yet. “But if headline inflation remains very low in 2016, as seems increasingly likely, the central bank will see an open door to extending its program beyond the September 2016 minimum to which it has pre-committed,” he said.

Though the agency expects the eurozone’s steady recovery to extend into the next couple of years, it said the slowdown in the Chinese economy could lop off 0.8 percent from eurozone growth by the end of 2017.

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