Euro zone inflation dips as expected in August
Euro zone inflation dropped 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 action.
Consumer prices in the 18 countries using the euro rose by just 0.3 percent year-on-year in August.
The ECB targets an inflation rate at below-but-close to 2 percent over the medium term, a level not seen since the first quarter of 2013. It also considers anything below 1 percent over time to be in a “danger zone”.
Inflation moving ever closer toward zero, a stagnating economy, a double-digit unemployment rate and increasing signs of reform fatigue among euro zone governments are posing a tough challenge for the ECB that it says it cannot solve alone.
Others believe the ECB should do more to stimulate growth.
“This is yet another bad indicator of the health of the euro zone economy,” said Aberdeen Asset Management Investment Manager Luke Bartholomew. “We are now relying on Draghi the politician not Draghi the economist to get Europe out of this mess.”
The euro rose to the day’s high of $1.3195 EUR= as investors trimmed bets against the currency after the data and German Bund futures fell.
“Core inflation resilience at just below 1 percent confirms that outright deflation remains unlikely,” said Marco Valli, chief euro zone economist at UniCredit.
In a separate data release Eurostat said that unemployment in the euro zone 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.
Attention now shifts to the ECB’s September policy meeting next Thursday where the inflation reading is set to liven up the debate in the Governing Council. Analysts expect a more serious discussion about possible large-scale asset purchases.
Source: Reuters
