Eurozone inflation falls to five-year low as unemployment stays flat at 11.5 per cent
Consumer price inflation in the eurozone dropped to 0.3 per cent in August, its lowest level since October 2009, as unemployment remained stubbornly flat at 11.5 per cent, official figures published this morning showed.
Although the figures were underwhelming, they met analyst expectations.
The drop in inflation was largely driven by energy prices, which fell 2.0 per cent – down from 1.0 per cent in July. Food price inflation was also weak, falling 0.3 per cent year-on-year.
Inflation in the region's crucial services sector fell from 1.3 per cent, where it has been since the start of the year, to 1.2 per cent.
Consistently high unemployment rates and falling inflation put more pressure on European Central Bank (ECB) president Mario Draghi to begin a quantitative easing programme in the region. During a speech to central bank chiefs last Friday, he hinted this could begin soon, saying the bank will "use all the available instruments needed to ensure price stability over the medium term".
Equities in the region were hit by increasing tensions in Eastern Ukraine yesterday. As Berenberg's Christian Shulz pointed out:
Much more important than inflation rates now is the economic rough patch caused by the crisis in Eastern Ukraine. Forward-looking indicators continue to fall, raising the risk that the Eurozone recovery may be interrupted for longer. That could delay any reversion in inflation trends and mean lower inflation for longer. As that risks de-anchoring inflation expectations, the ECB is likely to step up its response by December at the latest.