Eurozone Inflation Turns Negative in August

The inflation rate in the euro area turned negatively last month for the first time since May 2016, increasing the chances of the European Central Bank pumping more stimulus for higher prices that had not reached the target set for more than seven years.

The annual inflation rate in 19 euro-trading countries fell to -0.2 in August from 0.4 in July, below analysts’ expectations of 0.2%, and significantly below the European Central Bank’s target, down slightly from 2%.

Policymakers are concerned about the collapse of core inflation, which indicates that the deepest recession in the bloc’s living memory is not only a temporary shock, but may prove that its impact on consumer prices will be greater and extend for a longer period.

The rate of inflation, which excludes the most volatile fuel and unprocessed food prices and is closely followed by ECB, fell to 0.6% from 1.3%, while a narrower measure that excludes alcohol and tobacco fell to 0.4% from 1.2%. The two are far from analysts’ expectations.

Energy prices tumbled 7.8% year-on-year in August after falling 8.4% in July. Non-industrial goods prices also declined by 0.1%, following a 1.6% increase in July.