Tags: eurozone | inflation | dollar | euro

Eurozone Inflation Falls to Near 5-Year Low

Tuesday, 30 September 2014 07:32 AM EDT

Inflation across the 18 countries that use the euro dipped further toward zero in September, official figures showed Tuesday, a move that's likely to maintain pressure on the European Central Bank to back further stimulus measures.

In its first estimate, the EU's statistics office, Eurostat, said consumer prices in the eurozone rose only 0.3 percent in the year to September against the previous month's 0.4 percent.

The fall was widely anticipated in financial markets and was largely due to a hefty 2.4 percent fall in energy prices.

But it leaves inflation at its lowest level since October 2009 and way below the ECB's target of just below 2 percent. That's primarily why the ECB has cut its main interest rate to a record low of 0.05 percent and unveiled programs to get bank credit flowing.

By shoring up economic activity with stimulus measures, the ECB hopes to keep inflation from remaining too low — a growing economy can drive up wages as unemployment falls and fuel inflation. Separate figures Tuesday showed that unemployment in the eurozone was unchanged in August at a still sky-high 11.5 percent.

The ECB, like all other central banks, would rather see a modest inflation rate than a very low one. A particularly concern would be a sustained period of falling prices — so-called deflation can make consumers delay purchases as they anticipate lower prices and make businesses reluctant to invest. Japan is the most recent example of a major economy in the grip of deflation — two decades on, the world's third-largest economy is still struggling to emerge from its period of stasis.

Despite the latest drop in inflation, the ECB is not expected to announce any further stimulus measures at the conclusion of its monthly policy meeting on Thursday, which this time takes place in Naples, Italy, as opposed to the bank's headquarters in Frankfurt, Germany.

The ECB is likely to hold its fire, primarily because the last set of stimulus measures it announced at the start of September have yet to work through the eurozone economy. However, if there's little evidence that prices or economic activity are picking up, then the ECB, under the stewardship of its president, Mario Draghi, may consider further action in coming months.

One policy alternative that has been proposed in some European capitals, particularly those that have suffered the most over the past years of financial and economic crisis, is to back a monetary stimulus on the lines of those pursued by the Federal Reserve and the Bank of England. That would mean buying large amounts of government bonds with newly-created money.

However, many governments, particularly in Germany, Europe's powerhouse economy, are wary of such a move. Draghi has also said repeatedly that the ECB can only do so much — governments, he says, must speed up reforms of their economies to make them more competitive.

© Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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Inflation across the 18 countries that use the euro dipped further toward zero in September, official figures showed Tuesday, a move that's likely to maintain pressure on the European Central Bank to back further stimulus measures.
eurozone, inflation, dollar, euro
474
2014-32-30
Tuesday, 30 September 2014 07:32 AM
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