Eurozone inflation still stubbornly weak

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BRUSSELS: Eurozone inflation and jobless data on Wednesday fell short of analyst forecasts as the economy bumps along amid speculation the European Central Bank will have to adopt more stimulus measures.

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The official EU statistics agency Eurostat said eurozone consumer prices rose 0.2 percent in August, the same rate as in July.

Eurozone unemployment meanwhile was unchanged at 10.1 percent in July.

Analysts surveyed by financial services company Factset had expected inflation at 0.3 percent and unemployment at 10.0 percent in the 19-nation eurozone.

Inflation is a key indicator as it reflects underlying consumer demand in the economy and the figures have been well off the ECB’s target of around 2.0 percent for several years.

The ECB, which has so far pumped up the economy with more than one trillion euros in easy money, has promised to do whatever it takes to prevent deflation.

Deflation – when prices fall outright – can be fatal as consumers put off purchases to wait for cheaper goods.
Doing so, however, undercuts demand and then investment, hitting employment and putting the economy into a dangerous downward cycle.

Analysts said the data will disappoint the ECB but they were divided on whether it will take additional action at its meeting next week or choose to wait and see.

Stephen Brown at Capital Economics said flat inflation in August “highlights the fact that price pressures in the eurozone remain weak and boosts the case for more monetary easing from the ECB.”

The jobless figures meanwhile show “there is still a large amount of spare capacity in the labor market,” Brown said.

Howard Archer at IHS Markit said the inflation report would be “largely disappointing news for the ECB.”

“Adding to ECB concerns, there are signs that the eurozone labor market is faltering in reaction to recent slower growth and uncertainties over the outlook being magnified by the UK’s vote to leave the EU,” Archer said.

“It looks to be a very tight call as to whether or not the ECB acts on 8 September or decides to maintain a ‘wait and see’ stance,” he added.

Recent economic data has been mixed, with Britain’s shock June vote to quit the European Union hitting sentiment as feared but not to the disastrous extent some had warned of.

On Tuesday, the European Commission said its Economic Sentiment Indicator (ESI) for the eurozone dropped one full point to 103.5 in August.

Last week, however, data monitoring company Markit said the economy continued to prove resilient, with companies still ready to invest in their business.

 

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