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Eurozone inflation falls to 0.3 per cent as euro hits two year low against the dollar

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Eurozone inflation has dropped again, falling from a sluggish 0.4 per cent to 0.3 per cent.

Expectations of the fall pushed the Euro to a two-year low of $1.2659 against the dollar in morning trading.

While the figure was in line with expectations, it was nevertheless disappointing, and is likely to increase pressure on the European Central Bank to make more effort to expand the size of its balance sheet. Mario Draghi, the Bank's president, indicated last week he was willing to remove more monetary instruments from the ECB's medicine chest as unemployment remains stubbornly low and inflation is stuck deep in the Draghi's identified danger zone of less than one per cent.

We stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation.

Other recent figures have proved mixed. Unemployment for the Eurozone was bang on expectation at 11.5 per cent, with Italian youth unemployment hitting a new record high of 44.2 per cent. 

German inflation was 0.8 per cent year on year, unchanged from August. Analysts at Rabobank said a fall in commodity prices was limiting the inflationary recovery:

These figures provide some indication that German disinflation pressures are gradually starting to wane. Clearly, the recent fall in commodity prices is limiting any near-term recovery in inflation, although it is being partly offset by the weakening of the euro.