Eurozone inflation falls to 0.4%
Fall will increase pressure on the European Central Bank.
Inflation in the eurozone fell by 0.1 percentage points in July to 0.4%, according to a flash estimate published today (31 July) by Eurostat.
The drop will reinforce concerns about the eurozone’s persistently low levels of inflation and will increase pressure on the European Central Bank to do more to bring inflation closer to the ECB’s target of “below, but close to, 2%”.
Inflation in the eurozone was pulled down by falling energy prices, which decreased by an estimated annualised rate of 1% in July, and by the cost of food, alcohol and tobacco, which fell by an annualised rate of 0.3%.
By contrast, inflation for services was 1.3%, while inflation for non-energy industrial goods was flat at 0%.
Reacting to concerns that low inflation was hampering the eurozone’s recovery or that the eurozone might be slipping into outright deflation, the ECB in June announced various unconventional measures to try to increase inflation.
The most significant of those measures, so-called targeted longer-term refinancing operations, or TLTROs, will provide eurozone banks with loans worth up to €400 billion at rates of 0.25% for a period of two years.
Banks that lend this money to companies will be able to keep the loan for a further two years and will have access to more loans.
But the measure will only start to be implemented in September and is not expected to have a measurable effect on inflation until the spring of 2015.
The other principal measure announced by the ECB is that it will set its deposit interest rate at –0.1%, effectively charging banks that deposit money with it overnight. In theory, the move should encourage banks to lend more money to the real economy.
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