Euro Inflation Slows Sharply on Oil Just as ECB Caps Stimulus
(Bloomberg) -- Euro-zone inflation hit an eight-month low in December, just as the European Central Bank stopped adding stimulus to the economy.
Consumer prices increased an annual 1.6 percent in December, down from 1.9 percent in November. A measure that strips out volatile components such as fuel held at 1 percent, Eurostat said on Friday.
The decline in the headline rate is largely driven by oil and won’t surprise policy makers, who predicted weaker readings for the coming months when they announced the end of asset purchases. The price for Brent crude slid 35 percent in the fourth quarter, the most since 2014.
While the ECB can -- and does -- claim that quantitative easing erased the threat of deflation, underlying price pressures are still where they were in mid-2015, just a few months into the 2.6 trillion-euro ($3 trillion) program. Combined with reports of weakening growth momentum, that may reinforce investor expectations that the ECB won’t be able to raise interest rates this year.
A gauge for activity in manufacturing and services fell to a four-year low in December, and waning new-order growth suggests no immediate rebound is imminent. Companies indicated output costs rose at the slowest pace in 15 months. A separate report showed producer-price inflation dropped to 4 percent in November, the weakest in five months.
ECB President Mario Draghi presented forecasts last month that saw 2019 forecasts for growth and inflation cut to 1.7 percent and 1.6 percent, respectively. The central bank aims to keep the annual pace of consumer-price increases below, but close to, 2 percent in the medium term.
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