Eurozone inflation fell back into negative territory in September, figures out today showed. The flash CPI estimate fell to -0.1% year-on-year in September from 0.1% in August. Expectations were for inflation to ease to 0%. Core CPI was in-line with estimates, coming in at 0.9% and unchanged from the previous month.
As expected, the biggest downward pressure came from energy prices, which declined by 8.9% year-on-year. Food, alcohol and tobacco prices were up by 0.6% year-on-year, holding steady from the previous month. While the price of services edged up a little to 1.3% in September from 1.2% in August. Non-energy goods rose by 0.3% year-on-year.
The ongoing weakness in commodity prices has renewed fears of inflation heading back down again just months after the euro area emerged from a 4-month spell in deflation. The recent turmoil in financial markets and the uncertain growth outlook in China and other emerging market economies have added to worries that the Eurozone’s economic recovery may be cut short.
The European Central Bank has signalled its readiness to expand or extend its quantitative easing program. However, it is unlikely to take action unless there are clear signs that the recent global developments have started to cause significant downward pressure on Eurozone growth and inflation. Eurozone growth appears to so far sustain the momentum it picked up earlier in the year after the ECB launched its QE program in March. Consumer confidence is on the up and exporters are benefiting from a weak euro. But inflation remains muted and the impact of falling commodity prices could last longer than initially anticipated.
Also out today were unemployment figures, which showed Eurozone unemployment unchanged at 11.0% in August. Forecasts were for a reading of 10.9% and follows an upward revision to July’s figure from 10.9% to 11%. High unemployment remains a problem in many parts of the Eurozone, which is restraining wage growth, despite recent signs of strengthening jobs growth.
The euro was steady after the data, having fallen earlier in the day on rising risk appetite. The single currency was slightly lower at 1.1220 against the dollar in mid-European session and was also off highs against the yen at 134.93. But a surge in the pound after strong UK data dragged the euro sharply lower to 0.7386 pounds, down from an earlier high of 0.7430 pounds.