Eurozone inflation rate drops to three-year low as outlook darkens

Eurozone inflation rate drops to three-year low as outlook darkens

Consumer prices fall in September from year before while exports shrink

Eurozone inflation slowed to its lowest level in nearly three years and further diverged from the central bank’s target as exports contracted, raising fears of a sharp economic slowdown.

Consumer prices dropped to 0.8 per cent in September from a year earlier, from 1 per cent in August and below the initial estimates of 0.9 per cent, official data from Eurostat revealed. This was the slowest annual rise in consumer prices since November 2016.

Price pressure has remained stubbornly low in most eurozone countries despite European Central Bank measures announced last month, which included cutting the deposit rate by 10 basis points, aimed at fostering growth and edging closer to its 2 per cent annual inflation target.

“Almost every time Eurostat has published inflation data so far this year, the result has been disappointing for the ECB,” said Florian Hense, economist at Berenberg, an investment bank. “The jury is out as to whether the comprehensive policy package, which the ECB Governing Council adopted with a ‘clear majority’ in September, will bring inflation closer to target.”

Energy prices fell while core inflation — a measure closely monitored as less volatile that excludes energy, food, alcohol and tobacco — was unchanged at 1 per cent.

At 1.1 per cent, France was the only country among the larger economies to record an inflation rate above 1 per cent. In Germany, the pace dropped to 0.9 per cent, down from 2.2 per cent in September last year.

Prices are hardly rising in Spain and Italy where the rate fell to a mere 0.2 per cent.

Separate data from Eurostat released on Wednesday showed that trade is an increasingly weak point of the eurozone economy, largely reflecting the slowing of global exports.

Eurozone exports to the rest of the world fell 2.2 per cent in August compared with the same month last year. Intra-eurozone exports fell more sharply by 5.5 per cent, marking the second-largest contraction after June in three years.

International trade was dragged into contraction by a 5.7 per cent fall in exports of machinery and transport equipment, which probably reflects the slowing global investment following the US-China trade war escalation.

“Higher tariffs and prolonged uncertainty surrounding trade policy have dented investment and demand for capital goods, which are heavily traded” stated the IMF in its update of the World Economic Outlook on Tuesday. Economic growth forecast for the region was revised down 0.2 percentage point to 1.4 per cent in 2020.

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