Eurozone Consumer Prices Fall For First Time In 4 Years

Eurozone inflation turned negative for the first time in more than four years in August, signaling that more monetary stimulus measures are needed to push prices higher, preliminary data from Eurostat showed Tuesday.

Consumer prices fell 0.2 percent year-on-year in August, reversing a 0.4 percent rise in July and confounding expectations for an increase of 0.2 percent.

Prices declined for the first time since May 2016, when prices were down 0.1 percent.

The European Central Bank aims to keep inflation “below, but close to 2 percent.”

Largely due to discounting during summer sales, core inflation that excludes volatile energy, food, alcohol and tobacco, eased to a record 0.4 percent from 1.2 percent in July.

Core inflation will remain around that level for the next year at least, Jack Allen-Reynolds, an economist at Capital Economics, said.

The core rate should rise slightly in January when German VAT reverts to its previous levels, but weak demand is expected to keep core inflation very low for the foreseeable future, the economist added.

One-off factors played a role but declining services inflation confirmed once more that this crisis is indeed deflationary, Bert Colijn, an ING economist said.

For the ECB, which meets later in the month, these numbers are more a confirmation of what they already know: this crisis is deflationary despite some of the novel elements to it, said Colijn.

The ECB next meets on September 10.

Among components, food, alcohol and tobacco prices rose 1.7 percent annually, following a 2 percent rise in July. Energy prices continued to fall but the pace of decline slowed to 7.8 percent from 8.4 percent.

Non-energy industrial goods prices were down 0.1 percent, in contrast to July’s 1.6 percent rise. Meanwhile, services cost advanced 0.7 percent in August versus a 0.9 percent rise a month ago.

On a monthly basis, consumer prices declined 0.4 percent in August, data showed.

Elsewhere, survey data from IHS Markit showed that output charges declined for the fourteenth straight month in August due to competitive pressures. Nonetheless, the latest contraction was marginal and the weakest recorded in the last year.

Data published by the statistical office showed that the jobless rate in the currency bloc continued to increase in July despite some relaxation of covid-19 containment measures.

The jobless rate rose to 7.9 percent in July from 7.7 percent in June. However, the rate was marginally below the expected level of 8 percent.

The number of people out of work increased by 344,000 from June to 12.793 million in July.

The unemployment rate among youth aged below 25 rose to 17.3 percent from 17.2 percent in June.

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