The Euro was little changed versus the US Dollar after today’s CPI data showed inflation unexpectedly turned negative in September for the first time in six months. The region has recovered from much of the turmoil that the financial crisis brought about, but growth across the continent has been uneven and falling oil prices have further weighed on the region’s inflation data.
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According to a report released by the German Federal Statistical Office (Destatis), in August of the current year the import price of iron ore in Germany decreased by 17.3 percent year on year and was up 0.6 percent month on month. Howard Archer of IHS Global Insight commented that “it looks like being a long and arduous slog before Eurozone consumer price inflation gets up near the ECB’s target rate” adding that this target is very unlikely to happen before 2018.
Analysts surveyed by Bloomberg had expected a zero rate after a gain of 0.1 percent in August. The launch of that program, which was announced in January, was a direct response to declines in consumer prices that began in December, and appeared to come to an end in April. “Make no mistake, we’re heading lower; it’s just a case of when”, said Jonathan Sudaria, night dealer at London Capital Group, in a note.
Separate data showed unemployment in the euro zone at 11 percent in August.
While declining prices are largely a outcome of cheaper energy, policy makers including European Central Bank President Mario Draghi have signaled that they could expand quantitative easing if needed to avert deflation.
Even Finnish central bank chief Erkki Liikanen, normally considered an inflation hawk, has warned that euro zone growth is at risk from the slowdown in emerging markets and that inflation could fall short of already modest expectations.
The euro has remained relatively firm after European Central Bank Governing Council member Jens Weidmann late Tuesday said concerns about deflation had dissipated, signaling a lack of worry about diminishing price pressures.
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Against this backdrop, talk of an extension to the ECB’s asset-purchase program has grown in recent weeks.
