Eurozone consumer prices falling once again due to cheap oil

Author: The Associated Press
Published: Updated:

BRUSSELS (AP) – Consumer prices across the 19-country eurozone fell in September for the first time in half a year as energy prices tanked, official figures showed Wednesday in a development that’s likely to ratchet up pressure on the European Central Bank to give the region another dose of stimulus.

The 0.1 percent annual decline reported by Eurostat, the EU’s statistics office, was widely anticipated following the recent drop in global oil prices. The statistics agency said energy prices in the eurozone were a whopping 8.9 percent lower in September than the year before, more than the 7.2 percent drag registered in August.

The impact of energy costs is evident in the fact that, when they are stripped out of the calculations, consumer prices were 1 percent in the year to September. If food, alcohol and tobacco are also taken out, the eurozone’s so-called core inflation rate stood at an unchanged 0.9 percent.

Though anticipated, the negative headline rate is likely to be a disappointment to policymakers at the ECB who earlier this year launched a 1.1 trillion-euro ($1.2 trillion) stimulus program in the hope of getting inflation back toward target. The ECB aims for an inflation rate of just below 2 percent.

For a while, the stimulus appeared to be helping to bring inflation back up. It weakened the euro, making imports pricier, and it helped boost the economy by making the region’s exports more competitive and keeping borrowing rates low. In April, a four-month run of negative inflation rates came to an end.

Falling prices sound good in principle and can be, if temporary – many economists think the current period of weak or negative inflation is a boon to economic activity since it’s largely due to weak oil prices. Lower fuel costs mean consumers and businesses have more money to spend elsewhere.

The problem is when falling prices become entrenched in an economy. So-called deflation can weigh on economic activity, as in Japan in recent years. Falling prices over a long period of time can prompt consumers to delay spending in hopes of bargains down the line and make businesses reluctant to invest and innovate.

ECB President Mario Draghi has said the bank stands ready to provide more stimulus for the eurozone. Earlier this month, he said the bank could increase the “size, composition and duration of the program.”

The ECB is pumping 60 billion euros a month in newly printed money into the eurozone economy by buying financial assets, mainly government bonds. The program is slated to run at least through September 2016.

Separately, Eurostat said unemployment across the region fell by a modest 1,000 in August to 17.60 million, which left the jobless rate unchanged at 11 percent.

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