• Eurozone slips back into deflation

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    BRUSSELS: Eurozone inflation fell unexpectedly to a negative 0.1 percent in September, data showed on Wednesday, suggesting a dangerous spell of falling prices could be returning to Europe.

    Analysts surveyed by Bloomberg had expected a zero rate after a gain of 0.1 percent in August.

    The return to negative territory will add to pressure on the European Central Bank (ECB) to increase its huge stimulus program which is meant to ward off deflation and keep the economy on track, they said.

    Earlier this month, ECB head Mario Draghi warned that inflation in the 19-country eurozone could turn negative in the coming months, even if only temporarily.

    In March, the ECB launched a more than one-trillion-euro stimulus plan running through to September next year in order to get inflation closer to its 2.0 percent target.

    The fear is that deflation could become entrenched if consumers delay purchases in the hope of buying for cheaper later, which in turn prompts companies to hold off investment, creating a vicious circle of falling demand and fewer jobs.

    The ECB’s scheme initially appeared to work, slowly pushing inflation back up in core eurozone economies such as France and Germany.

    But the rise has now stalled in Germany, the eurozone’s biggest economy.

    The ECB believes that the present fall in prices is driven primarily by low oil prices.

    “The slowing effects on inflation brought on by the fall in energy prices will be temporary,” said Jens Weidman, the head of Germany’s central bank and an ECB board member said Tuesday.

    Analysts however think the ECB will have to increase its massive Quantitative Easing program to ensure the slip into negative territory is only temporary.

    The Eurostat statistics agency also said eurozone unemployment was unchanged at 11 percent in August.

    AFP

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