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Europe

Eurozone inflation returns to zero, unemployment falls

© AFP/DANIEL ROLAND | The headquarters of the European Central Bank (ECB) in Frankfurt, Germany.

Text by NEWS WIRES

Latest update : 2015-10-30

The eurozone's annual inflation rate was 0 percent in October, a weak reading that could help push the European Central Bank to expand its stimulus program.

The rate rose from minus 0.1 percent the month before, the European Union statistics agency Eurostat said Friday.

Falling energy prices were a major factor in keeping the rate low. But weak price increases are also a sign of less than robust demand in the economy.

Fears of continued low inflation could lead the ECB to extend its stimulus program, in which it buys bonds from banks using newly printed money. The bond purchases are slated to run at least through September 2016, but the ECB has indicated it could decide to expand that program or deploy a different form of stimulus at its December meeting.

The 1.1 trillion euro ($1.2 trillion) stimulus program in essence prints new money - something only the central bank can do - and pushes it into the financial system through banks in the hopes that they will lend more and help businesses expand and hire.

In theory, printing money should push up inflation, but price increases have been slow to respond. The annual rate remains well below the ECB's goal of just under 2 percent.

Even core inflation, which excludes volatile energy prices, rose to only 1.0 percent in October from 0.9 percent the month before.

Low inflation makes it harder for indebted companies and countries to reduce their burdens. It also complicates efforts by bailed-out members of the eurozone such as Greece to make their economies more competitive with European trade partners. And in the long term, it can become ingrained and undermine wages, investment and growth.

Analyst Howard Archer at IHS Global Insight said that "it looks like being a long and arduous slog before eurozone consumer price inflation gets up near the ECB's target rate...Indeed it looks increasingly unlikely to happen before 2018.

"Consequently, the odds continue to favor the ECB will deliver further stimulative measures at its 3 December policy meeting," Archer wrote in a research note.

Eurostat also said that unemployment in the eurozone fell to 10.8 percent in September from 10.9 percent the month before, extending a gradual improvement in the currency bloc's labor market.

(AP)
 

Date created : 2015-10-30

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