News / Economy

Disappearing Eurozone Inflation Set to Heighten ECB Concerns

European Central Bank Executive Board member Benoit Coeure (L), Greece's Prime Minister Antonis Samaras (2nd L) and European Central Bank Mission Chief for Greece Klaus Masuch (R) talk after a meeting at the Prime minister's office in Athens, August 28, 2014.
European Central Bank Executive Board member Benoit Coeure (L), Greece's Prime Minister Antonis Samaras (2nd L) and European Central Bank Mission Chief for Greece Klaus Masuch (R) talk after a meeting at the Prime minister's office in Athens, August 28, 2014.
Reuters

Eurozone inflation dropped as expected to a fresh five-year low in August, data showed on Friday, something likely to concern the European Central Bank but not force it into immediate policy intervention.

Consumer prices in the 18 countries using the euro rose by just 0.3 percent year-on-year in August, the smallest increase since October 2009, the European Union's statistics office Eurostat reported.

Inflation, which dropped unexpectedly to 0.4 percent in July, has been locked in what ECB President Mario Draghi called a 'danger zone' of below 1 percent since October last year.

Vanishing inflation poses problems for the ECB as it tries to respond to the bloc's stalled recovery, which is facing additional struggles because of economic sanctions imposed against Russia in July over its involvement in the deepening conflict in Ukraine.

“The very low eurozone inflation reading for August reinforces pressure on the ECB to consider further monetary stimulus on top of what is already in the pipeline,” said Martin van Vliet, senior eurozone economist at ING.

Any immediate action coming at the ECB's Sept. 4 policy meeting is not considered likely, though also not impossible, according to ECB sources talking to Reuters earlier this week. The bank is likely to wait.

Investors and markets, however, will seek more insight from Draghi about what can and will be done by the ECB and European governments to push through reforms and revive growth.

A cocktail of jobless recovery, sluggish growth and low inflation is a major worry for the eurozone and the ECB has urged governments to speed up implementation of structural reforms, vital for Europe's economy to heal.

Some countries are opposed to too much loose monetary policy, however, and there are a number of reform laggards in the currency bloc.

“He is walking a tightrope between conservative European institutions and the markets desire for more stimulus,” said Guy Nicholls at Aberdeen Asset Management.

“But as every month passes we get closer to the dread of deflation and Draghi looks more and more like Nero fiddling while Rome burns,” he added.

The euro rose to the day's high of $1.3195 as investors trimmed bets against the currency after the data and German Bund futures fell.

The drop in August inflation was led by a 2.0 percent decline in the highly volatile prices of energy and a prices of food, alcohol and tobacco falling by 0.3 percent for a second month in a row in August.

In June, the ECB cut interest rates to record lows, started charging banks to keep their funds overnight and launched a new long-term loan program, which will start in September and aims to give banks an incentive to lend more to the real economy.

Since then, the ECB has been in a wait-and-see mode, wanting to see the impact of its new liquidity injection first before considering further stimulus measures, though Draghi has stressed repeatedly the ECB stands ready to do more if needed.

The ECB targets an inflation rate at below-but-close to 2 percent, a level not seen since the first quarter of 2013.

In a separate data release Eurostat said that unemployment in the eurozone was, as expected unchanged at 11.5 percent for a second months in a row in July, leaving 18.4 million people without jobs in the 9.6 trillion euro economy.

You May Like

Photogallery Obama Announces Plan to Send 3,000 Troops to Liberia in Ebola Fight

At US Centers for Disease Control and Prevention, Obama details troop deployment and other pieces of US plan More

China Muslims Work to Change Perceptions After Knife Attacks

Muslims in Kunming say that they condemn the violence, it is not a reflection of the true beliefs of their faith More

Humanitarian Aid, Equipment Blocked in Cameroon

Move is seen as a developing supply crisis in West Africa More

Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Enviropreneur Seeks to Save the Environment, Empower the Communityi
X
September 16, 2014 2:06 PM
Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid

World Currencies

EUR
USD
0.7735
JPY
USD
107.03
GBP
USD
0.6155
CAD
USD
1.1011
INR
USD
60.954

Rates may not be current.