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The Hague - Economic observers reacted with some concern to news that inflation in the eurozone is nearing zero.
Eurostat, the statistics bureau of the European Union (EU), recently issued a statement that eurozone inflation slipped to just 0.1% in August, down from 0.2% in July. In August 2014 the inflation rate was still at 0.5%.
This is lower than the previously expected inflation rate of 0.2%.
When the price swings of energy, food, alcohol and tobacco are taken out of the picture, inflation is calculated at 0.9%. This is due to the fact that energy, for example, went down by 7.2%, compared to a year ago.
A similar story applied to the EU as a whole, with inflation even slowing to 0% in August, whereas it was 0.2% in July and 0.5% in August last year.
To compound matters, a negative annual rate was recorded in 11 EU states. These included Cyprus (-1.9%), Romania (-1.7%) and Lithuania (-1%).
This is seen as worrisome, as a negative or very low inflation rate indicates economic stagnation. That this news comes at a time when the EU is apparently clawing its way out of a deep economic crisis does not improve economic observers’ mood.
European Central Bank (ECB) president Mario Draghi earlier this month said the ECB is ready to combat falling inflation. It wanted to do this with a programme of “quantitative easing”, meaning the buying of billions of euros’ worth of government bonds.
The plan, which has in fact already been launched, includes the purchase of €60bn in government bonds per month in order to inject more cash into the economy and increase the inflation rate to about 2%.
The programme may now be accelerated.
This comes at a time when eurozone manufacturing has doubled. The German Bureau of Statistics said earlier in the week that production in the eurozone was up by 0.6% in July, compared to the month before.
