Eurozone inflation fell deeper into the negative territory in September, with this increasing the pressure on the European Central Bank in order to add stimulus, as the ongoing recession will continue to maintain price growth below the target for oncoming years.
In the 19 countries that make up the eurozone, annual inflation fell to minus 0.3% in September, with this being the lowest in more than four years, from the minus 0.2% reached in August.
Data from Eurostat showed on Friday that the drop in inflation fell short of expectations, with analysts expecting an unchanged reading.
Even more worrying for ECB policymakers, underlying inflation, excluding volatile food and energy costs, fell to 0.4% from 0.6%, with this being extremely far from the ECB’s target of almost 2%.
Services inflation also slowed further and the cost of imported industrial goods fell.
Whilst the ECB has unleashed unprecedented stimulus this year in order to fight against the pandemic-induced economic shock, rising unemployment, surging savings, widespread travel restrictions and falling business investment have all had a massive impact on the exceptional drag on prices.
With Europe currently well and truly in a second wave of COVID-19, this will probably continue to add to the gloom, leading to even more pressure on prices, according to economists.
The ECB kept the door open for more stimulus last month, with board member Fabio Panetta making a clear case for pre-emptive action, claiming that the cost of doing too much is smaller than doing nothing.
Panetta’s argument is supported even further by a tumble in an even narrower core inflation reading, with this reading excluding alcohol and tobacco prices, with this going from 0.4% to 0.2% from August to September.
However, no ECB move is expected in October, with policymakers claiming that more data, mainly on 2021 fiscal policies, is required before make a new decision on matters.
The ECB has also made the move to prepare markets for bad inflation readings, arguing that price growth could remain negative for the rest of 2020, before a steady acceleration next year.
With more stimulus being increasingly likely in December, the ECB is set to extend and expand its €1.35 trillion Pandemic Emergency Purchase Programme, with this programme being used to lower borrowing costs by soaking up government and corporate debt as much as possible.
The ECB could also change the terms of its extremely cheap loans to commercial banks in order for them to keep on lending to businesses.