ECB expected to act as euro deflation looms

 

Inflation in the eurozone has fallen to a five-year low, reinforcing expectations that the European Central Bank will ultimately take action to avert deflation in the single currency.

The latest flash estimate from Eurostat released yesterday showed annual consumer price growth of just 0.3 per cent in August, down from 0.4 per cent in the previous month and the lowest increase since October 2009 when much of the developed world was still in recession.

The reading was in line with consensus expectations and the euro strengthened slightly against the dollar to $1.3193 on the news. However, analysts said the ECB is likely to prepare the ground for asset purchases at its regular meeting next Thursday in response.

“We expect Mr Draghi to provide strong hints of more policy easing,” said Jessica Hinds of Capital Economics. “Further growth disappointment and continued undershooting of the ECB’s inflation projections will eventually deliver a broad-based asset purchase programme,” said Janet Henry of HSBC. “We see the ECB launching an asset purchase programme at the turn of year,” said Michel Martinez of Société Générale.

However, the German Finance Minister Wolfgang Schäuble poured cold water on the idea of asset purchases in an interview with Bloomberg. “I don’t think ECB monetary policy has the instruments to fight deflation, to be quite frank,” he said. “Liquidity in markets is not too low, it’s even too high. Therefore I think monetary policy has come to the end of its instruments.”

Separate data showed the unemployment rate for the single currency zone was stuck at 11.5 per cent in July.

Eurostat said that declines in energy prices, which were down 2 per cent on a year earlier, drove the fall in total inflation in August. Food, alcohol and tobacco prices were also 0.3 per cent lower than a year earlier. Service prices were up 1.2 per cent.

Last week at the Jackson Hole summit of central bankers the ECB president Mario Draghi noted that market expectations of inflation five years out had fallen below the central bank’s target of 2 per cent. “The Governing Council will acknowledge these developments and, within its mandate, will use all the available instruments needed to ensure price stability over the medium term,” he said.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific