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Epidemics

Eurozone Slides into Deflation, ECB Under Pressure

Strategic Insights

— 1 min read

The eurozone has entered deflation for the first time in four years, with headline consumer price inflation falling to minus 0.2 percent in August, from a 0.4 percent increase the previous month. The decline, attributed to lower oil prices and economic factors in Germany, France, Italy, and Belgium, has raised concerns about the European Central Bank's ability to support the region's economic recovery. The ECB, set to meet next week, may consider extending its crisis-response asset purchase program, given the low inflation figures. Meanwhile, Germany's economy minister, Peter Altmaier, expressed optimism about the country's recovery, citing its resilient labor market and forecasts of a V-shaped rebound. However, industry leaders warned that the recovery remains fragile, with production and exports still below pre-pandemic levels.

Key Takeaways:

  • The eurozone has entered deflation for the first time in four years, with headline consumer price inflation falling to minus 0.2 percent in August.
  • Lower oil prices and economic factors in Germany, France, Italy, and Belgium are attributed to the decline in inflation.
  • The ECB may consider extending its crisis-response asset purchase program, given the low inflation figures.
  • Berlin's economy minister, Peter Altmaier, expressed optimism about the country's recovery, citing its resilient labor market and forecasts of a V-shaped rebound.
  • Industry leaders, however, warned that the recovery remains fragile, with production and exports still below pre-pandemic levels.
  • Germany's economy is expected to contract by 5.8 percent this year, down from a previous forecast of 6.3 percent.

Statistics:

  • Headline consumer price inflation fell to minus 0.2 percent in August, from a 0.4 percent increase the previous month.
  • Deflation hit 12 of the 19 eurozone countries in August, including Germany, Italy, Spain, Portugal, and Greece.
  • Core inflation, which excludes energy, food, and tobacco prices, fell to a record low of 0.4 percent in August, down from 1.2 percent in July.
  • The ECB's forecast for inflation is expected to reach 1.3 percent by 2022, still well below its core target of just below 2 percent.

Sources:

  • Eurostat: European Commission's statistics agency
  • Pictet Wealth Management: Global wealth manager
  • Berenberg: European private bank
  • Germany's BDI business association: Country's largest industry association
  • European Central Bank: Monetary authority for the eurozone
  • BBC: The biggest public service broadcaster in the UK

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