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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 
Europe.

   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 
percent.   


(KA)


 
 
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