Economy

Weaker euro zone inflation raises concern over ECB policy

Eurostat says prices in currency area grew by just 0.8 per cent year on year

European Central Bank (ECB) President Mario Draghi (L) and Pierre Moscovici, the European Commissioner for Economic and Financial Affairs and Taxation (R) at the start of the Eurogroup meeting in Luxembourg. Photograph: Julien Warnand/EPA

Wed Oct 16 2019 - 10:43

Euro zone inflation slowed in September by more than previously estimated to its lowest pace in nearly three years, the European Union statistics agency said on Wednesday, in a new warning on the state of the bloc's economy.

Eurostat said prices in the 19-country currency area grew by 0.8 per cent on the year, revising down its earlier estimate of a 0.9 per cent rate. That also defied the market consensus of a 0.9 per cent growth. In a separate release, Eurostat said on Wednesday that the bloc's trade surplus with the rest of the world rose to €14.7 billion in August, from €11.9 billion the previous year, as euro zone's imports dropped more than its declining exports.

The revised inflation reading marked a more pronounced slowdown from the 1 per cent growth in August and was the lowest rate since November 2016 when prices grew by 0.6 per cent in the bloc. The new drop is likely to raise new concerns on the state of the euro zone economy and could reignite the debate within the European Central Bank on how to pursue its goal of keeping inflation below, but close to 2 per cent over the medium term. The revision was due to lower-than-expected inflation for industrial products, in a fresh worrying sign for the bloc's manufacturing sector which faces drops in output and a fall in confidence. Prices for industrial goods, excluding energy, went up by a mere 0.2 per cent on the year in September, Eurostat said, revising its earlier estimate of a 0.3 per cent increase. Energy prices were confirmed falling by 1.8 per cent, while inflation in the service sector, the largest in the bloc, rose by 1.5 per cent in line with previous estimates.

Separately UK inflation remained at its lowest for almost three years in September as sliding fuel and second-hand car prices kept headline prices down. Figures from the Office for National Statistics (ONS) show the Consumer Price Index (CPI) was 1.7 per cent last month, the same as in August. The rate of inflation was last lower in November 2016. The rate remained lower than predicted by analysts who had forecast 1.8 per cent. - Reuters/PA

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