Eurozone returning to zero


The Eurozone, which is a group of European Union nations whose currency is the euro, has returned to zero. The inflation rate rose from -0.1 percent to 0 percent in October.

Prices were lower in energy than they were in the previous year. This was a big factor in the rate staying low. Although there was a slight price growth in food, alcohol and tobacco, it was not enough to bring the percentage up past zero.

The price of services is up to 1.3 percent, the price of energy is down to 8.7 percent, and the price of unprocessed food rose 3 percent.

It is said that the Eurozone rate is the lowest it has been since January 2012. The inflation figures are a flash estimate from Eurostat. Therefore, they do not show what the rate is for each individual state.

“Although today’s inflation and unemployment data for the Eurozone revealed small improvements, they are still very weak by past standards, suggesting that the ECB cannot afford to delay increasing its policy support much longer,” said Jessica Hinds, European economist at Capital Economics. The unemployment rate made a slight improvement from the previous month. Within the 19 European countries the rate went from 10.9 percent to 10.8 percent.

With the low inflation rate, this may cause the European Central Bank to extend the current stimulus program which was launched in March. The program is to purchase bonds from banks using newly printed money which only the central bank has authority to do. The hope is that with the central bank pushing money through the financial system through banks, it will cause the banks to help more businesses expand. In essence that means hiring more employees boosting the unemployment rate. The president of the European Central Bank, Mario Draghi, hinted at cutting interest rates to boost quantitative easing due to the low levels of Eurozone inflation.

Right now the bond purchases are supposed to run through September 2016. During the European Central Bank’s December meeting, however, they will decide if they will extend the program or come up with a completely new form of stimulus.

Core inflation only rose to 1 percent from 0.9 percent in the previous month. The zero percent inflation is still too far below the European Central Bank’s target which is 2 percent. There are doubts that the central bank’s target will be made within the years to come. Mario Draghi stated, “The credibility of a central bank is measured by its ability to comply with its mandate.” This shows that things are serious and he realizes how serious it is. The pressure is what may guide the European Central Bank’s decision to extend the current program.

The confidence that the European Central Bank know what they are doing is no longer there. Some are asking why they should think that giving more of the same thing will yield different results. They also believe the European Central Bank is making up policy as they go along. A deposit rate cut seems to be on the horizon, but nothing is certain until the meeting is held in December.

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