European Prices Are Sliding as Economy Fights for Virus Recovery

(Bloomberg) -- Consumer prices are sliding in Europe in the wake of the coronavirus lockdowns, with Germany, Italy and Spain all reporting negative inflation rates in August.

German consumer prices fell an annual 0.1% in August, the first sub-zero reading in more than four years, with downward pressure exacerbated by a government sales-tax cut to aid the economy. The declines were even sharper in Italy and Spain, two countries hit especially hard by infections and travel restrictions.

The figures demonstrate how the pandemic is further depressing inflation in the euro zone that was considered too low by the European Central Bank even before the crisis.

The extent to which prices slide will help determine whether the ECB ultimately needs to add more monetary stimulus. President Christine Lagarde already warned last month that inflation rates will decline further before picking up early next year, but that depends on how the economy progresses.

After an initial sharp rebound in activity that hinted at a V-shaped recovery, momentum has slowed recently. Infections are on the rise again after the summer holiday season, stoking fears of new lockdowns and yet higher unemployment.

ECB chief economist Philip Lane has warned against drawing conclusions too soon, and pledged that the central bank stands ready to step up its bond-buying program or adjust other tools as needed.

The latest inflation and unemployment figures for the whole 19-nation currency bloc will be published by Eurostat on Tuesday.

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