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Near zero eurozone inflation hands ECB ‘green light’ for fresh stimulus boost

Mario Draghi, president of the European Central Bank, expected to announce new measures to promote growth and fight low inflation

Weak eurozone inflation in November has given the European Central Bank the

The giant Euro symbol stands outside the headquarters of the European Central Bank in Frankfurt, Germany Photo: Getty

Eurozone inflation was stuck near zero in November, giving the European Central Bank the “final green light” to unleash a fresh wave of stimulus on Thursday in an attempt to boost growth and ward off the threat of deflation.

Consumer prices rose by just 0.1pc in the year to November, which was unchanged from October, according to a preliminary estimate by Eurostat. Economists had expected inflation to tick up to 0.2pc.

While a 7.3pc drop in energy prices remained the biggest factor weighing on price growth, the data also showed core inflation, which strips out volatile price movements in food and fuel, rose by just 0.9pc in November, down from a 1.1pc annual increase in the previous month.

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The surprise fall in core inflation pushed the euro down by half a cent against the dollar and weakened the single currency against a basket of other currencies, including the pound, as traders bet that more easing was all but inevitable.

Mario Draghi, the president of the ECB, is expected to announce on Thursday that the central bank will beef-up its €1.1 trillion bond-buying programme. Economists also expect policymakers to slash the ECB’s deposit rate deeper into negative territory.

Peter Vanden Houte, an economist at ING, said weaker core inflation provided a “green light” for policymakers to ramp up quantitative easing.

“[Core inflation] continues to hover around 1pc, which is way below the ECB’s inflation target for a headline inflation below but close to 2pc,” he said.

Mario Draghi has pledged that policymakers will do “what we must” to boost inflation in the eurozone  Photo: AP

“Although consumption has picked up over the last quarters, benefitting especially the services sector, this hasn’t reflected yet in services price inflation. This clearly reflects Mr Draghi’s worry that core inflation rates remain stubbornly low.”

Last month, Mr Draghi said the ECB would “do what we must” to lift inflation “as quickly as possible”, although Jens Weidmann, the head of Germany’s Bundesbank has stressed that the current measures will take time to “fully feed into the economy”.

Ewald Nowotny, Austria’s central bank governor and a member of the ECB’s governing council, suggested this week that policymakers could revise down their projection for inflation in 2017 from a current forecast of 1.8pc. This would back the case for more stimulus in the 19-country bloc.

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This entry was posted on December 3, 2015 by and tagged , , .

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