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Wednesday November 22nd, 2017 5:05PM

Inflation stagnates in eurozone, won't change ECB plans

By The Associated Press
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FRANKFURT, Germany (AP) — Inflation was stuck at an annual 1.5 percent rate in September in the 19-country eurozone, a reading that likely won't change plans by the European Central Bank to start withdrawing its monetary stimulus next year.

The figure released Friday by the European Union statistics agency was short of the 1.6 percent expected by market analysts. And core inflation, which excludes volatile food and energy, fell to 1.1 percent from 1.2 percent in August.

The reading underlines the challenge facing the European Central Bank. Inflation remains below the bank's goal of just under 2 percent, even as the bank is contemplating the gradual withdrawal next year of its monetary stimulus in the form of 60 billion euros ($70 billion) per month in bond purchases. The hope is that a steadily growing economy will eventually push up demand for labor, wages and inflation.

Inflation is likely to slow further in the final months of the year as fuel price inflation eases, according to Jack Allen, European economist at the Capital Economics.

"But there are signs that underlying inflationary pressures are starting to build," Allen said. "The upshot is that today's data are unlikely to dissuade the ECB from tapering its asset purchases in 2018.

ECB President Mario Draghi has said that the bank could take most of the decisions regarding a gradual reduction in bond purchases at its Oct. 26 meeting. Analyst say the purchases could be slowly phased out over the course of the year. An increase in the bank's benchmark interest rate from the current zero, however, remains far off because the bank has said that move will only follow the end of the bond purchases.

The bond stimulus uses newly created money to purchase government and corporate bonds from banks, injecting new money into the financial system in the hopes that it will expand credit availability and raise inflation. The bank's goal of just under 2 percent is considered most consistent with a healthy economy.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Economy
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