German Inflation Drops Below Zero in Euro-Area Price Alert

The Stoxx 600 Tumbles 0.4 Percent
  • Inflation rate falls to minus 0.2 percent vs. estimate of zero
  • Surprise price slide may raise pressure for more ECB stimulus

Germany’s inflation rate fell to the weakest level since January, unexpectedly dropping below zero and adding downward pressure to prices in the euro area.

Consumer prices in Europe’s largest economy slid 0.2 percent in September from a year earlier, the Federal Statistics Office in Wiesbaden said on Tuesday. Economists predicted a rate of zero, according to the median of 23 estimates in a Bloomberg survey. Prices dropped 0.3 percent from the previous month.

The report could spark more calls for the European Central Bank to increase monetary stimulus for the 19-nation euro area, six months into its 1.1 trillion-euro ($1.2 trillion) asset-purchase program. Prices in the region probably stalled in September, according to a separate survey before a report on Wednesday. The ECB’s goal is medium-term inflation of just under 2 percent.

“Though the number was a bit weaker than expected, the main driver was energy prices and that should have only a temporary effect that disappears toward the end of the year,” said Johannes Gareis, an economist at Natixis in Frankfurt. “That said, the ECB won’t like this number and there will be reason for talks about more quantitative easing to intensify.”

The euro dropped after the German data were released. The single currency was down 0.4 percent at $1.1205 at 2:38 p.m. Frankfurt time.

German energy prices slumped 9.3 percent in September from a year earlier. That reflects the trend in the euro area, where a 24 percent drop in oil since the end of June has weighed on inflation.

ECB President Mario Draghi said at a press conference on Sept. 3 that while the region may see negative inflation rates in coming months, they would be “transitory effects” rather than deflation.

Recent economic data has shown signs that the currency bloc’s recovery is still on track, if fragile. A measure of euro-area confidence published Tuesday unexpectedly increased to the highest level in more than four years.

Draghi and some of his colleagues on the ECB’s Governing Council have said it’s too early to decide whether more stimulus is needed. Jozef Makuch, the head of the Slovakian central bank, reiterated that view on Tuesday.

“The ECB has declared the asset-purchase program is flexible enough and it’s possible to adjust its scope and composition and duration,” he said at a press conference in Bratislava. “I won’t comment on what would be needed to adjust, if anything, as this would be a speculative answer.”

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