More disinflation for the Eurozone.
The flash estimates were correct and inflation in the Eurozone has slowed to 0.3 per cent in the year to September.
With second-quarter GDP growth also sclerotic at 0.2 in the euro area, there isn’t much to cheer. Industrial production has been weak and France looks on collision course with Brussels over missed deficit targets.
Two of the currency bloc’s biggest economies - France and Italy - are stagnant and in recession respectively.
Spain is suffering from deflation for the third month in a row and it isn’t alone: seven other countries are in negative territory too:
Prices becoming cheaper may sound like respite for countries with high unemployment rates, but it increases the burden of debt both for heavily indebted nations and individuals.
The European Central Bank has a mandate to keep inflation just below two per cent, but not one EU country is there at the moment. The closest is Romania, with 1.8 per cent.
Howard Archer of HIS Global Insight said that deflation was a real possibility:
The further dip in Eurozone consumer price inflation in September will clearly be of serious concern to the ECB as it keeps the deflation spectre very much in sight especially given current stuttering Eurozone economic activity and sharply falling oil prices.Indeed, sharply weaker oil prices is significantly increasing the likelihood that the Eurozone will see deflation before long.While the ECB would likely play down deflation being caused by sharply lower oil prices, it would undoubtedly be seriously concerned that this would further reduce inflation expectations and put downward pressure on core inflation.
The ECB is limbering up to unleash monetary firepower. It will begin buying private securities this month and expand the buying program to asset-backed securities soon after.