Eurozone Inflation Remains Negative For Second Month

Eurozone consumer prices declined for the second straight month in September adding pressure on the European Central Bank to add stimulus and kick start the economy from the coronavirus driven downturn.

Consumer prices decreased 0.3 percent on a yearly basis, following a 0.2 percent drop in August, flash data from Eurostat showed Friday.

A similar lower rate was last seen in April 2016. Prices were expected to fall again by 0.2 percent in September.

The European Central Bank aims to keep inflation “below, but close to 2 percent.” But the bank expects inflation to average 1 percent in 2021 and 1.3 percent in 2022.

On a monthly basis, the harmonized index of consumer prices edged up 0.1 percent in September. Final data is due on October 16.

Core inflation that excludes volatile energy, food, alcohol and tobacco, halved to a record 0.2 percent from 0.4 percent in August.

Food, alcohol and tobacco prices advanced 1.8 percent and services costs grew 0.5 percent. Meanwhile, the decline in energy prices deepened to 8.2 percent from 7.8 percent and that of non-energy industrial goods to -0.3 percent from -0.1 percent.

Looking ahead, inflation will probably rise a touch next year as oil prices increase, Germany’s VAT cut is reversed, and as long as prices in the tourism sector don’t keep falling sharply, Jack Allen-Reynolds, an economist at Capital Economics, said.

But weak aggregate demand means that inflation looks likely to remain far below the near-2 percent target. The economist expects the ECB to loosen monetary policy further, perhaps before the end of the year.

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