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September 1, 2016

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Weak inflation may see further stimulus from ECB

CONSUMER price inflation in the eurozone was stuck at 0.2 percent in August, a low rate that could encourage the European Central Bank to offer more stimulus sooner rather than later.

The figure reported yesterday by statistics agency Eurostat was the same as in July and below economists’ expectations for an uptick to 0.3 percent. It also remains far short of the European Central Bank’s target of 2 percent.

The main culprit was a 5.7 percent annual drop in energy prices. But inflation for other goods and services was also relatively weak. Not including energy and other volatile items like food, alcohol and tobacco, overall consumer price inflation was 0.8 percent, a rate the ECB see too low for a healthy economy.

The central bank has launched a series of stimulus measures to help the economy of the 19-nation eurozone and bring inflation to a healthier level. It has cut its key rate to zero and is pumping 80 billion euros (US$90 billion) of new money into the economy every month by buying bonds from banks and companies. That aims to lower borrowing rates and encourage business activity.

Analysts are divided over whether the ECB will launch more stimulus at its next policy meeting September 8. Some say it’s only a matter of time, particularly if inflation doesn’t pick up this year.

In such an event, the central bank could extend the duration of its bond-buying program, which is currently set to end in March 2017.

Economists note that the drop in oil prices should get phased out of the inflation data in coming months.


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