ECB received additional arguments for easing monetary policy
Eurozone inflation remained low at 1.0% in August, well below the European Central Bank’s target / Market expects regulator to ease monetary policy further next month.
The statistics office of the European Union on Friday said that inflation in 19 countries of the eurozone remained at the level of July.
Economists say recent economic data has strengthened arguments for further easing of monetary policy.
The Governing Council of the ECB is holding its regular meeting on monetary policy on 12 September. The regulator has already hinted at a stimulus package at a time when economic growth has slowed due to the world trade war, and the manufacturing industry in Germany is already in recession.. Earlier this summer, ECB President Mario Draghi said that he was considering further options to support the eurozone economy and stressed that one of the possibilities includes a new asset purchase program to stimulate lending and accelerate inflation..
Analysts expect there will be multiple interest rate cuts next year alongside a new bond buying cycle commonly called quantitative easing (QE).
ECB measures also provide a way to compensate commercial banks for side effects from negative interest rates..
Core inflation, which the ECB scrutinizes for policy making, remained stable in August at 1.1%.
Low headline inflation strengthens the rationale for the ECB’s package of measures to support the economy and accelerate inflation.
The problem for the ECB is that inflation in the eurozone has not reached the target level since 2013, despite a prolonged economic boom, which has created more than 10 million jobs. This expansion should have already stimulated inflation, but the latent decline in the labor market, the growing share of services in the economy and the aging population were holding back prices..
The ECB also faces the added difficulty that much of the current economic weakness is due to external factors such as Brexit, the trade war and China’s own slowdown, against which monetary policy is largely ineffective..
While the ECB is unlikely to admit that the current problems are outside of its control, economists say the best it can hope for is to maintain confidence and maintain an already favorable funding environment..
Eurozone unemployment rate stood at 7.5% in July, also unchanged from the previous month, Eurostat data show..
Last week, Erik Nielsen, chief economist at UniCredit, predicted that QE would launch in September and could cost between € 300 billion and € 400 billion ($ 333.07 billion to $ 444.10 billion) over a nine-month period..
The Eurozone is still struggling to cope with low inflation and grow at a significant pace. According to the latest forecasts, in June, headline inflation should reach 1.3% in 2019 – ECB target «lower but close to 2%». In terms of growth, the European regulator expects the economy to grow 1.2% versus 1.8% growth in 2018.
Sylvia Dall&# 39; Angelo, Senior Economist at Hermes Investment Management, told CNBC last week that she does not rule out decisive moves by the ECB.
«An ECB official recently called for a more decisive step, it is more likely that the program will be increased rather than reduced. Let’s say € 45 billion per month for a year», – he said.
World governments pump trillions into their economies