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Oct 31, 2014 6:09 AM

Eurozone inflation creeps up to 0.4 percent

The Associated Press

FRANKFURT, Germany (AP) Inflation crept higher in the 18 countries that use the euro in October but the rise to an annual 0.4 percent offered little relief to the European Central Bank as it tries to boost a weak economy.

Inflation was up from 0.3 percent the month before. The figure announced Friday by EU statistics agency Eurostat was in line with market expectations but remains way below the bank's goal of keeping inflation just below 2 percent.

The European Central Bank is under pressure to introduce more drastic stimulus measures in coming months to boost the ailing eurozone economy, which is suffering from weak growth and inflation that is too low. There are fears the eurozone could even fall into outright deflation, a crippling downward price spiral. While the overall inflation figure rose, the core rate, which excludes volatile food and energy prices, fell to 0.7 percent from 0.8 percent.

Economist Christian Schulz at Berenberg bank in London said the "alarm bells may be ringing a little less loudly" at ECB headquarters in Frankfurt but that the increase in headline inflation "provides only limited reassurance."

"The latest economic rough patch may further delay the long-expected gradual rebound in inflation and will probably trigger more discussions about further easing at the upcoming meetings." The ECB's governing council meets Thursday but analysts think the bank is unlikely to take further action then.

ECB President Mario Draghi has said the bank is willing to take further stimulus measures if the outlook worsens. The ECB could start large-scale purchases of financial assets such as government bonds, a step which can pump newly created money into the economy and raise inflation and growth. But doing more is complicated by opposition in Germany, the eurozone's largest and most influential member.

The U.S. Federal Reserve has just come to the end of such a bond-purchase program, known as quantitative easing, or QE. And the Bank of Japan said Friday it was stepping up its own bond purchase program.

Unemployment figures also offered little relief. The unemployment rate of 11.5 percent was unchanged, and the number of jobless people declined, but only by 19,000.

The ECB is already conducting a smaller-scale bond purchase program aimed at easing the flow of credit to companies. It is buying bonds made up of bundles of bank loans a step it hopes will encourage more loans. It has also cut its benchmark interest rate to near zero and is offering ultra-cheap loans to banks tied to their lending to businesses

The eurozone economy showed zero growth in the second quarter, and lending to companies remains subdued.



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