The Economy

Eurozone Inflation Rate Sluggish

The European Central Bank may have to increase its stimulus efforts to get European economies moving, say experts.
Katie Kuehner-HebertJanuary 5, 2016
Eurozone Inflation Rate Sluggish

The inflation rate in the eurozone slowed in December 2015, raising expectations that the European Central Bank will try even more stimulus measures to boost growth.

The headline inflation rate remained unchanged at 0.2%, missing expectations for a rise to 0.3% and still far short of the bank’s target, according to Eurostat, the statistical office of the European Union. Core inflation, which excludes energy and food prices, fell slightly to 0.8%, from 0.9% in November and 1% in October.

“The numbers we got today are a tentative indication that inflation may not pick up as the ECB had forecast a month ago,” Societe Generale’s head of corporate research Kenneth Broux told The Globe and Mail.

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“It gives the market the reason to believe, and that’s certainly our forecast, that the ECB will come back and do more, potentially as soon as March, in terms of cutting the deposit rate and expanding the quantitative easing program even more.”

The ECB last month cut the already-negative interest rate its pays on deposits from banks, and extended the bond-buying program unveiled in January 2015 by six months to March 2017, according to The Wall Street Journal.

ECB President Mario Draghi said at the time that he expected inflation to start to pick up “at the turn of the year,” and continue to move toward the central bank’s target of just under 2% in 2016 and 2017.

Economists continue to expect that the annual rate of inflation will rise in the early months of 2016, but less sharply than previously forecasted.

“We stick to our long-held below-consensus view that euro area headline … inflation is unlikely to return close to the ECB target any time soon; we also think that risks are skewed to the downside,” Barclays economist Fabio Fois told the WSJ.

Barclays expects the inflation rate to average 0.5% this year and 1.3% in 2017, while ECB economists forecast price rises of 1% and then 1.6%, said the WSJ.