Euro-area inflation picks up from five-year low on ECB stimulus
By Bloomberg
Euro-area inflation accelerated from a five-year low in October, offering some reprieve to European Central Bank policy makers struggling to prevent a spiral of price declines.
Consumer prices rose 0.4 percent from a year earlier, the European Union's statistics office in Luxembourg said today. That's in line with the median of 41 estimates in a Bloomberg News survey and follows a reading of 0.3 percent in September. Unemployment held at 11.5 percent in September, Eurostat said in a separate report.
Policy makers have embarked on a series of unprecedented stimulus measures since June to stave off deflation and rekindle growth. The economy has shown some signs of reaction, with business confidence unexpectedly improving and factory and services activity picking up. Economists forecast growth of 0.2 percent in the third and fourth quarters.
Recent "better-than-feared" economic data "should allow the ECB to wait at least until the December meeting before possibly deciding on new action," said Carsten Brzeski, chief economist at ING-DiBa in Frankfurt. "Possible further drops in euro-zone inflation, however, will keep the pressure on the ECB to do more up high."
Energy prices fell 1.8 percent in October from a year earlier, the fourth drop in as many months, today's report showed. The declines reflect a slide in the cost of oil of almost 25 percent since June that's damping already low inflation. The rate that strips out volatile items such as energy, food, tobacco and alcohol, slowed to 0.7 percent from 0.8 percent.
'Negative Inflation'
"During a long period of weak inflation, there exists the risk that an economic shock causes negative inflation," ECB Executive Board member Peter Praet said in an interview with L'Echo this month. "When one is close to zero, and a new shock happens, the risk of negative inflation is surely not non- existent."
Inflation hasn't met the ECB goal of just below 2 percent since early 2013. While President Mario Draghi has said that the risk of outright deflation in the region is remote, he predicts price gains will "remain low over the coming months before increasing gradually during 2015 and 2016."
The Frankfurt-based central bank started buying covered bonds last week and said it will expand into asset-backed securities in November. It also cut interest rates to record lows and offers long-term loans to banks to fuel credit supply.
"We may not have seen the last of ECB easing yet," Christian Schulz, senior economist at Berenberg Bank in London, wrote in a note to clients. "The latest economic rough patch raises the chances that inflation will stay low for longer in Germany, giving the ECB ample room for maneuver."
Policy makers will leave the benchmark rate unchanged at 0.05 percent and the deposit rate at minus 0.2 percent when they meet next week, economists predict.