Eurozone inflation falls to three-and-a-half year low

EUROZONE inflation as expected fell last month to its lowest in three-and-a-half years as inflationary pressures continued to ease amid a weak economic recovery and shy domestic demand.

The rate of consumer price inflation in the 17 countries using the euro fell to 1.1% year on year in September, its lowest since February 2010 when it stood at 0.8%, the European Union’s (EU’s) statistics office, Eurostat, said yesterday.

The reading was down from 1.3% in August and was well below the European Central Bank’s (ECB’s) official target of an inflation rate of close to but below 2%. Prices rose 0.5% from August, as a 0.4% drop in food, alcohol and tobacco products prices and a 0.9% decline in prices of services were offset by a 3.4% jump in prices of non-energy industrial goods.

Volatile prices of energy were up by 0.5% in September on the month.

ECB executive board member Peter Praet said on Tuesday that inflation pressures in the eurozone remain subdued in the medium term, including 2015.

The low inflation environment allows the ECB to keep an ultraloose policy stance with the main refinancing rate at a record low of 0.5% and the bank has said repeatedly that it is ready to react if the economy needs a further policy boost.

With inflationary pressures low, economic optimism in the eurozone brightened for the fifth month running in September and jumped to a two-year high on improving confidence across all sec- tors and confirmed that the recovery was under way.

In a separate release, Eurostat said the bloc’s foreign trade surplus grew to €7.1bn in August from €4.6bn in August last year, as exports fell by only 5% while imports were down 7% year on year.

A brightening export picture could be seen in the eurozone’s southern periphery countries such as Greece and Portugal, confirming that their economies were regaining competitiveness thanks to continuing structural adjustment.

Exports in Greece, which hopes to return to growth next year after a six-year recession, were up 6% in the first seven months. Portugal, due to exit an international aid programme next year, saw exports up by 4% in January-July.

Countries seeking to join the EU must do more to account for their economic progress, the bloc’s executive proposed yesterday, as it presented a new report on how its membership hopefuls are doing.

Albania, Bosnia, Iceland, Kosovo, Macedonia, Montenegro, Serbia and Turkey are all candidates or potential candidates for EU accession.

“Enlargement continues to be one of the most effective EU policies,” EU commissioner responsible for the portfolio Stefan Fule said. “It strengthens political and economic stability in the aspiring countries and the EU as a whole.”

The focus for most hopefuls had been on the rule of law and fundamental freedoms. But this year “economic governance and competitiveness” were identified by the European Commission as a key challenge.