Inflation slump could presage more eurozone stimulus

FRANKFURT: Annual inflation in the 19-country eurozone sagged further below zero in September, bolstering expectations that the European Central Bank will add to its emergency stimulus efforts to cushion the impact of the pandemic on the economy.

The consumer price index was down 0.3 per cent in September, even lower than the minus 0.2 per cent figure in August, according to official figures released on Friday (Oct 2) by the European Union statistics agency, Eurostat.

Excluding volatile food and fuel prices, inflation fell to 0.2 per cent in September from 0.4 per cent in August. The so-called core inflation figure is often considered the better measure of price movements in the economy as a whole.

Weak inflation can be a sign of economic weakness and is a major reason why analysts predict the ECB will add to its €1.35 trillion (US$1.6 trillion) programme of regular bond purchases, which push newly printed money into the financial system. 

The purchases are intended to stabilise financial markets and keep credit flowing to businesses. The ECB's goal is to have annual inflation of just under 2 per cent.

While low inflation can benefit consumers up to a point, ongoing weak prices can be a sign of slack in the economy. Low inflation can also make it harder for indebted countries in the eurozone to improve their competitiveness compared with the other members of the currency bloc.

ECB head Christine Lagarde gave little indication that more stimulus was coming at the bank's Sep 10 meeting. 

The bank's 25-member governing council next meets on Oct 29 and Dec 10, although it can enact new measures at any time.