Euro-Area Inflation Slows, Adding to Case for ECB Stimulus Move

(Bloomberg) --

Euro-area inflation unexpectedly slowed last month, handing another argument to those in favor of the European Central Bank’s recent monetary stimulus package.

Consumer prices rose an annual 0.9% in September, less than half the ECB’s goal of just under 2% and below economists’ estimates. The core measure, which excludes more volatile elements such as energy, food and tobacco, rose to 1%, exceeding the headline rate for the first time since late 2016.

Policy makers’ decision to cut interest rates further below zero and restart quantitative easing -- one of the most controversial in the institution’s history -- was driven by concerns that inflation won’t move back to the ECB’s goal.

Weakening economic growth is at least partially to blame. Manufacturing is mired in a deepening slump, hurt by trade tensions, weakening global demand and geopolitical uncertainty. New orders saw the sharpest contraction in almost seven years, pointing to a further deterioration in output, according to a separate report from IHS Markit.

What Bloomberg’s Economists Say

“With below-trend growth expected to persist well into next year and inflation expectations sliding, the ECB is concerned that the current slowdown may push underlying inflation in the wrong direction.”

Maeva Cousin. Read the EURO-AREA REACT

ECB chief economist Philip Lane, who proposed the September easing package, argued Monday that inflation pressures from strong domestic demand and an improving labor market are being partly offset by dwindling manufacturing and economic growth.

Lane, as well as outgoing ECB President Mario Draghi, have stressed that policy makers can do more if needed to boost inflation, while also urging governments to support their efforts with fiscal spending. It’s a stance likely to prevail under Christine Lagarde, who will take over from Draghi in November.

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