Inflation in the euro area failed to pick up in September and underlying price growth weakened, keeping the European Central Bank waiting for the
Inflation in the euro area failed to pick up in September and underlying price growth weakened, keeping the European Central Bank waiting for the last chapter in the story of the region’s recovery.
The 1.5 percent annual increase in consumer prices matched the August rate, but fell short of the 1.6 percent median forecast of economists. German inflation data on Thursday also disappointed. The core rate, excluding food and energy, unexpectedly fell to 1.1 percent from 1.2 percent.
While confidence is booming, unemployment slowly falling and the economy set for the fastest growth in a decade, a sustainable pickup in prices remains a key element that hasn’t appeared. That’s crucial for the ECB, which aims for inflation just below 2 percent — without stimulus support — and whose policy makers will decide on Oct. 26 whether to start paring back bond purchases in 2018.
One development that is weighing on inflation is the euro, which is up 12 percent against the dollar this year and could act as a drag on import costs. Producer-price inflation, generally a more volatile number, has cooled in recent months after picking up sharply since mid-2016.
Bank of France Governor Francois Villeroy de Galhau played down the importance of the exchange rate in remarks on Thursday, saying it’s offset by strong domestic demand, but still urged the ECB to be “pragmatic” in how it reduces the pace of bond purchases. Inflation’s return to target is “too slow,” he said.
Figures earlier on Friday highlighted that the dilemma of strong growth and weak price gains extends to the euro zone’s biggest economy. Germany reported a drop in unemployment to a record low, just a day after publishing inflation data that showed consumer-price growth missed estimates.
bloomberg.com
