Eurozone Inflation Drops to 0.4% 07/31 06:52
BRUSSELS (AP) -- The inflation rate in the 18-nation eurozone dropped again
in July, official data showed Thursday, likely adding pressure on the European
Central Bank to beef up its efforts to spur the economy.
In a preliminary estimate, Eurostat, the European Union's statistical
agency, said inflation fell to 0.4 percent from the previous month's 0.5
percent, where analysts were predicting it to remain. Inflation is at its
lowest reading since October 2009, when the world economy was hit by a raging
financial crisis that caused severe recessions.
Low inflation is a worry because it can lead to deflation, in which falling
prices choke off growth. Escaping from deflation can take years, if not
decades, as in Japan's case.
"The ECB has more work to do to tackle the risk of deflation," said analyst
Jonathan Loynes of Capital Economics.
The ECB has already cut interest rates and vowed to get inflation back
toward the 2 percent target within two years. But it has so far refrained from
the bolder step of large-scale asset purchases, a policy that other major
central banks like the U.S. Federal Reserve have used with some success.
Howard Archer, economist at analysis group IHS, said the drop in the overall
inflation rate is partly attributable to a fall in energy prices, which are
volatile. In fact, the core inflation rate, which excludes volatile food and
fuel costs, remained unchanged on the month at 0.8 percent.
Thursday's figures nevertheless come as "a blow for the ECB," especially
since the economic outlook remains weak, suggesting inflation is unlikely to
rise anytime soon.
"There is undeniably a very real risk that eurozone consumer price inflation
could go lower still ... barring an appreciable rise in oil and gas prices
resulting from geopolitical factors hitting supplies," he said, referring to
the current tension with Russia, which is a major oil and gas supplier for
The ECB in June already cut its benchmark interest rate to 0.15 percent and
cut another rate into negative territory for the first time to counter the
threat posed by low inflation. It also promised billions in cheap loans for
banks on condition they lend more to businesses.
Analysts say the next step to help shore up the bloc's weak economy and
inflation rate would be launching a program of asset purchases. Such a program
involves injecting new money into the economy by buying large amounts of bonds
and other financial assets.
The eurozone officially came out of recession in last year's second quarter,
but growth remains weak. Output grew by only 0.2 percent in the first quarter
from the previous three-month period.
In more upbeat data, the eurozone's unemployment rate fell slightly from
11.6 percent in May to 11.5 percent in June, its lowest value since September
2012, Eurostat said. The drop beat analysts' consensus expectations, which
forecast the jobless rate to stay flat, according to data service FactSet. The
number of jobless in the eurozone fell by 150,000 to 18.4 million in the
eurozone, which encompasses 330 million people.
For the wider 28-nation EU, which includes members like Britain and Poland
that don't use the euro currency, unemployment dipped from 10.3 percent to 10.2