Home MoneyBanks Eurozone Inflation Hits Five-Year Low in September

Eurozone Inflation Hits Five-Year Low in September

by Yomna Yasser

The annual rate of inflation in the eurozone fell further below the European Central Bank’s target in September, and to its lowest level since October 2009.

The decline is a setback to the ECB which, earlier this month, launched a series of measures designed to boost growth and start to move the inflation rate back toward its goal of just below 2.0%. It is too soon for those measures to have had an impact, but the further drop in the rate at which consumer prices are increasing underlines the severity of the threat confronting policy makers.

The European Union’s statistics agency said consumer prices were just 0.3% higher than in Sept. 2013, as the inflation rate slowed from 0.4% in Aug. The inflation rate has now been below 1.0% for 12 straight months.

Figures released by Eurostat also showed that the jobless rate was unchanged at 11.5% in August from in July, while the number of people without work fell by 137,000, leaving 18.35 million unemployed. More up-to-date figures for Sept. released by Germany’s labor agency Tuesday recorded a surprise 12,000 rise in the number of people without work.

The decline in the inflation rate was expected by forecasters and is unlikely to prompt an immediate response from the ECB when its governing council meets on Thursday in Naples, Italy.

Policy makers are likely to take some time to assess the impact of the two waves of stimulus measures announced since June, which include cheap, medium-term loans to banks, cuts in key interest rates, and purchases of asset-backed securities and covered bonds.

There are reasons to expect the rate of inflation will begin to pick up from next month. With food and energy prices very low in Europe last fall, annual comparisons for these sectors should start rising in October. Analysts refer to these statistical forces as base effects.

However, inflationary pressures are likely to remain very weak. Surveys of businesses have pointed to a weakening of activity as the third quarter has progressed, making it unlikely that the eurozone economy has picked up significantly after stagnating in the second quarter.

And other surveys released on Monday showed that businesses and consumers across the 18 countries that share the euro were more downbeat about their prospects in September than at any time since the end of 2013, likely reflecting disappointment with the pace of the eurozone’s economic recovery and the conflict in Ukraine.

Worryingly for the ECB, businesses said they expect their selling prices to be weaker than they did before the measures were announced, while consumers also lowered their expectations for inflation.

There are some signs of a pickup in consumer spending. Germany’s statistics agency said retail sales in the eurozone’s largest member surged 2.5% in Aug., the largest month-to-month rise in overt three years. And France’s statistics agency said consumer spending rose by 0.7% in Aug., having fallen at the same rate in July.

Source: MarketWatch

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