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Eurozone core inflation fall raises prospect of ECB stimulus measures

Underlying inflation in single currency area was lower year on year in July, despite action taken by bank over past 18 months

The headquarters of the European Central Bank in Frankfurt, Germany
The headquarters of the European Central Bank in Frankfurt. Eurozone unemployment was unchanged at 10.1% in July. Photograph: Michael Probst/AP

Speculation is growing that the European Central Bank could take action to stimulate the eurozone economy after official figures showed an easing in underlying inflation last month.

Pressure on the ECB increased when the European commission’s statistical agency, Eurostat, published figures that showed core inflation in July was lower than in same month last year, despite aggressive action by the Frankfurt-based bank over the past 18 months.

With concerns that the eurozone recovery was losing momentum, Eurostat said the headline rate of inflation remained unchanged at 0.2% in August. Core, or underlying inflation, which excludes energy, goods, alcohol and tobacco, fell from 0.9% in July to 0.8%.

Separate Eurostat data showed that eurozone unemployment was unchanged at 10.1% in July, the latest month for which figures are available for all 19 countries that use the euro. The jobless rate in the eurozone has fallen from 10.8% over the past year, but financial markets had been expecting the reduction to continue to 10% last month.

The ECB has been using negative interest rates and quantitative easingin an attempt to increase activity and push inflation back towards its target of just below 2%.

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Analysts said the inflation and unemployment figures would be discussed when the ECB meets to discuss policy options next week.

Stephen Brown of consultancy Capital Economics said: “The unchanged headline inflation rate in August highlights the fact that price pressures in the eurozone remain weak and boosts the case for more monetary easing from the ECB.

“With [the] survey data also pointing to a marked slowdown in growth ahead, there is a strong case for the ECB to announce further policy easing. This could come as soon as the bank’s meeting next week.”

Bert Colijn of ING Bank said he did not expect action from the ECB next week, but that the central bank would be concerned by the weakness of underlying inflationary pressure.

“The fact that core inflation is now lower than it was a year ago will be alarming to ECB governing council members, especially as economic activity seems to be slowing further in the third quarter on political and economic uncertainty,” he said.

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This entry was posted on September 1, 2016 by and tagged , , , .

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