Eurozone inflation unexpectedly turns negative in September

 
Jessica Morris
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Unprocessed food provided the most upward momentum (Source: Getty)

Large falls in energy prices pushed the Eurozone back into deflation for the first time in six months, according to an initial estimate from the official statistics agency.

Consumer prices across the single currency bloc fell to minus 0.1 per cent in September, more than economists expected, and down from plus 0.1 per cent a month earlier. This was driven by a significant drop in energy prices, which were 8.9 per cent cheaper than a year earlier.

Consumer prices across the single currency bloc slipped to minus 0.1 per cent in the year to September, from 0.1 per cent rise a month earlier, and a steeper fall than economists' expectations for zero. It was driven by a big drop in energy prices, which were 8.9 per cent cheaper than a year earlier.

But unprocessed food provided the most upward momentum for the index, with a 2.7 per cent rise. Meanwhile, core inflation - which strips out more volatile components such as energy and food - rose 0.9 per cent year-on-year.

Read more: Eurozone growth revised upwards

This will add to mounting pressure on the European Central Bank (ECB) to boost its quantitative easing programme, introduced in March, as it coincides with global headwinds such as a slowing Chinese economy and the prospect of the first interest rate rise in the US since 2006.

Under the programme, Frankfurt is buying government bonds and other assets, pumping around €1 trillion (£780bn) into the economy, with the aim of lifting inflation towards its target rate of just under two per cent.

"The far bigger concern, in our view, still relates to weak underlying price pressures ... against a backdrop of dwindling inflation expectations ... we think the ECB will be increasingly wary about the downside risks to its mandate," Timo del Carpio, European economist at RBC Capital Markets, said.

"We thus reiterate our view that the Governing Council will look to cement expectations over the continuation of its asset purchase programmes beyond their nominal end-date of September 2016."

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