Eurozone Inflation Slows In August

Eurozone Inflation

Inflation in the Eurozone continued its sluggish pace in August, with price growth slowing to 0.1% increase from the previous year according to a Wednesday report from Eurostat, the European Union’s statistics agency. That was down from 0.2% in July.

The news will likely mean continued stimulus measures as the European Central Bank tries to jumpstart the region’s economy. ECB President Mario Draghi already opened the door to further quantitative easing after fears of a slowdown in China sparked sell-offs in world markets.

“We are observing a weakening of the prospects of the Chinese economy,” Draghi said then, according to the Financial Times. “This has two effects substantially: one is through trade . . . and the confidence effect on the stock market and all other financial markets.”

The ECB’s existing QE program, begun in March to the tune of 1.1 trillion euros (or about $1.2 trillion), has not led to a substantial increase in prices. Inflation saw a quick boost, to just 0.3%, before retreating in the following months.

The central bank’s vice president, Vitor Constancio, attributed part of that slow price growth to oil’s sagging fortunes.

“If the price of oil does not continue to go down — it cannot go down indefinitely — we will see a jump in inflation in the last quarter of this year,” Constancio said in an interview, according to Bloomberg. “But we may have before that some months of negative inflation.”

There could be another factor driving down inflation. The Wall Street Journal reports that labor costs were also slowing in the Eurozone, which could help keep prices down.

Like the U.S. central bank, the ECB’s inflation target is a 2% growth rate. The Federal Reserve is currently considering an interest rate increase but persistently low inflation in the American economy is complicating that decision-making process.

Following Wednesday’s inflation report, the euro was trading down to $1.1238.


Written by Gene Giannotta

Gene Giannotta is a writer based in Washington, D.C. He reports on economic policy, finance and business news.

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