The European Union’s statistics office said on Friday that inflation in the 19 countries sharing the euro was unchanged from the July reading, in line with expectations in a Reuters poll.
The rates of price increases in July and August are the lowest since November 2016, well below the ECB’s inflation target of below, but close to, 2% despite years of unprecedented monetary stimulus through rate cuts and trillions of euros of bond purchases.
Economists said the latest economic data strengthened the case for further loosening monetary policy.
“There is nothing in today’s data releases to change the minds of ECB policymakers meeting the week after next: we still expect them to cut the deposit rate from -0.4% to -0.5% and to provide further strong hints that more QE is on the way,” Capital Economics’ Andrew
The ECB’s Governing Council holds its next monetary policy meeting on Sept. 12 and has all but promised a stimulus package, with economic growth faltering amid a global trade war and Germany’s manufacturing sector already in recession.
Market expectations are that it will carry out several interest rate cuts in the coming year, along with a fresh round of bond purchases, commonly known as quantitative easing.
The ECB’s measures are also set to include a way to compensate commercial banks for the side effects of negative interest rates.
Core inflation, which strips out volatile unprocessed food and energy and which the ECB
The even narrower measure excluding also alcohol and tobacco prices that many market economists look at was unchanged at 0.9%.
Eurostat’s flash estimate for the month does not include a monthly calculation.
The low overall level of inflation strengthens the case for a package of ECB measures to support the economy and faster inflation.
The ECB’s problem is that inflation has undershot its target
Such an expansion should have fuelled inflation
While the bank has argued that inflation would eventually come, it has already exhausted much of its firepower and now faces economic turbulence with a relatively depleted arsenal that could force it to once again to reinvent its policy toolkit.
The ECB is also facing the added difficulty that much of the current economic weakness is due to external factors, such as Brexit, a trade war and China’s own slowdown, against which monetary policy is largely ineffective.
While the ECB is unlikely to admit that the current troubles are outside its control, economists say that the best it can hope for is to prop up confidence and preserve already
- Source, Reuters
