Eurozone inflation at low as ECB mulls move
Print Edition
As if the European Central Bank needed any more incentive to inject another dose of stimulus into the 19-country eurozone economy, official figures yesterday showed inflation in the region remains worryingly low.
The annual rate of price increase across the eurozone was stuck at 0.1 percent in November, the European Union’s statistics agency said. That was below market expectations for an uptick to 0.2 percent and way short of the ECB’s target of just below 2 percent.
As a result of weak inflation and growth, the ECB is expected to announce another stimulus for the eurozone at the conclusion of its policy meeting today despite some reservations within the ECB’s governing council.
Most economists expect the ECB to make it more expensive for commercial banks to park their cash at the central bank — cutting the so-called deposit rate further into negative territory — and to extend and swell its current 1.1-trillion-euro (US$1.2 trillion) government bond-buying program.
Jonathan Loynes, chief European economist at Capital Economics, said the inflation numbers have given the “green light” to the ECB to announce “much-needed additional stimulus” today.
“The ECB is likely to remain nervous that a further period of low inflation will lead to a bigger drop in inflation expectations and take action tomorrow accordingly,” said Loynes. He expects the ECB to increase its monthly pace of asset purchases from 60 billion euros to 80 billion and cut its deposit rate by a further 0.2 percentage points to minus 0.4 percent.
The aim of both measures would be to stoke inflation by boosting economic activity in the region through a combination of low interest rates and more bank lending.
Policy-makers at the ECB will be particularly concerned by the fact that the core inflation rate, which strips out volatile items such as energy, food, alcohol and tobacco, fell to 0.9 percent from 1.1 percent. The consensus in the markets was the rate to remain flat.
The low core rate is likely to fuel concerns that low inflation is becoming embedded in expectations.
The euro fell in reaction to the inflation data, from about US$1.0620 to US$1.0584.
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