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

Could Nemtsov Threaten Putin in Death as in Life?

Dynamic and debonair opposition leader had supported liberal economic reforms, criticized Russian president's aggression in Ukraine More

Oil Smuggling Highlights Challenges in Shutting Down IS Finances

Pentagon spokesman says Islamic State 'certainly continues to get revenue from the oil industry black market' but that airstrikes have made a dent More

India Focuses on Infrastructure, Investment to Propel Economy

Government expects economy to grow at 8 to 8.5 percent in next fiscal year More

This forum has been closed.
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.
US Supreme Court Hears Hijab Discrimination Casei
X
Katherine Gypson
February 25, 2015 11:30 PM
The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video US Supreme Court Hears Hijab Discrimination Case

The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video Falling Gas Prices Hurt Nascent Illinois Hydraulic Fracturing Industry

Falling oil prices are helping consumers purchase cheaper petroleum at the pump. But that’s made hydraulic fracturing or “fracking” less economically viable for the companies in the United States invested in the process. VOA’s Kane Farabaugh reports on one Midwestern town that was hoping to change its fortunes by cashing in on the next big U.S. oil boom.
Video

Video Fighting in Sudan's South Kordofan Fuels Mass Displacement

Heavy fighting in Sudan's South Kordofan state is causing hundreds of thousands to flee into uncertain conditions. Local aid organizations estimate as many as 400,000 civilians have been internally displaced since the conflict began more than three years ago, while another 250,000 have fled across the border to refugee camps in South Sudan. VOA's Adam Bailes reports.
Video

Video Lao Dam Project Runs Into Opposition

A Lao dam project on a section of the Mekong River is drawing opposition from local fishermen, international environmental groups and neighboring countries. VOA's Say Mony visited the region to investigate the concerns. Colin Lovett narrates.
Video

Video A Filmmaker Discovers Her Biracial Identity in "Little White Lie

Lacey Schwartz grew up in an upper middle-class Jewish family, in a town in upstate New York where almost everyone she knew was white. She assumed that she was, as well. Her recent documentary, Little White Lie, tells the story of how she uncovered the secret of her true racial background. VOA’s Carolyn Weaver has more on the film.
Video

Video Deep Under Antarctic Ice Sheet, Life!

With the end of summer in the Southern hemisphere, the Antarctic research season is over. Scientists from Northern Illinois University are back in their laboratory after a 3-month expedition on the Ross Ice Shelf, the world’s largest floating ice sheet. As VOA’s Rosanne Skirble reports, they hope to find clues to explain the dynamics of the rapidly melting ice and its impact on sea level rise.
Video

Video US-Cuba Normalization Talks Resume Friday

Negotiations aimed at normalizing diplomatic relations between the U.S. and Cuba resume Friday. On the table: lifting a half-century trade embargo and easing banking and travel restrictions. There's opposition in Congress, but some analysts say there may be sufficient political and economic incentives in both nations for a potential breakthrough this year. VOA's Mil Arcega reports.
Video

Video Pakistan's Deadline For SIM Registration Has Cellphone Users Scrambling

Pakistani cell phone users have until midnight Thursday to register their SIM cards, or their service will be cut off. While some privacy experts worry about government intrusion, many Pakistanis are just worried about keeping their phone lines open. VOA Deewa reporter Arshad Muhmand has more from Peshawar.
Video

Video Myanmar Warns Factory Workers to End Strikes

Outside Myanmar's main city Yangon, thousands of workers walked off their jobs earlier this month demanding a doubling of their wages, pay raises after a year and input from labor unions on industrial regulations. Since Friday, the standoff has grown more tense as police moved in to disrupt the sit-ins, resulting in clashes that injured people from both sides. VOA correspondent Steve Herman visited industrial zones which have become a focus of Myanmar's fledgling workers rights movement.
Video

Video Oscar Winners Do More Than Thank the Academy

The Academy Awards presentation is Hollywood’s night to reward the best movies from the previous year. It’s typically a lot of glitter, a lot of thank you’s, a lot of speeches. But many of this year’s speeches carried messages beyond the thank you's. VOA’s Carolyn Presutti takes a look.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.8896
JPY
USD
119.26
GBP
USD
0.6475
CAD
USD
1.2451
INR
USD
61.816

Rates may not be current.