Eurozone experienced deflation in September for the first time in six months as energy prices decreased further adding pressure on the European Central Bank to initiate more quantitative easing.
Consumer prices fell unexpectedly by 0.1 percent year-on-year in September, offsetting a 0.1 percent rise in August, flash data from Eurostat showed Wednesday. Economists had forecast prices to remain flat.
The ECB targets to bring inflation to ‘below, but close to, 2 percent over the medium term’.
Excluding energy, food, alcohol and tobacco, core inflation remained unchanged at 0.9 percent in September as expected by economists. Final data is due on October 16.
Inflation is likely to remain weak for some time yet, Jack Allen at Capital Economics said. The economist thinks that the ECB will need to increase the scale of its QE programme if it is to push inflation back to its target.
The ECB is currently buying EUR 60 billion bonds a month to boost prices. Early this month, the central bank downgraded its inflation outlook citing lower oil prices and the exchange rates.
Inflation forecast for this year was lowered to 0.1 percent from 0.3 percent. The projection for next year was cut to 1.1 percent from 1.5 percent.
Eurostat data showed that energy prices plunged 8.9 percent in the currency bloc, while all other components posted gains from a year ago. Food, alcohol and tobacco prices climbed 1.4 percent and cost of services climbed 1.3 percent. Non-energy industrial goods prices moved up only 0.3 percent.
EU harmonized prices in Germany fell 0.2 percent year-on-year in September. In Spain, harmonized prices fell more sharply by 1.2 percent, which was the second consecutive drop. At the same time, Italy’s inflation halved to 0.2 percent from 0.4 percent.
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