This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2014/10/01/business/international/eurozone-inflation-falls-but-unemployment-remains-steady-data-show.html

The article has changed 3 times. There is an RSS feed of changes available.

Version 1 Version 2
Eurozone Inflation Falls, but Unemployment Remains Steady, Data Show Eurozone’s Drop in Inflation Carries More Fears of Another Recession
(about 5 hours later)
FRANKFURT — Inflation in the eurozone fell in September, while unemployment in August remained at 11.5 percent, reinforcing concerns that the region is at risk of a downward price spiral that would have grave economic consequences. FRANKFURT — The drop in eurozone inflation reported Tuesday was, in one sense, just a decimal point, another digit in the daily flow of depressing economic data. Yet it raised an increasingly urgent question: What will it take to arrest the Continent’s slow-motion descent toward another recession and, possibly, a renewed existential crisis?
Inflation declined to 0.3 percent from 0.4 percent, according to a preliminary estimate by Eurostat, the European Union statistics agency. The figure was in line with analyst expectations but still well below the European Central Bank’s target of just under 2 percent. It has been almost two years since inflation in the eurozone was at 2 percent, right around the level that the European Central Bank considers optimal for stability and growth. In September, according to an official estimate published Tuesday, the annual rate of inflation fell to 0.3 percent from 0.4 percent the month before.
The decline in inflation, which is at five-year lows, continues to worry economists and policy makers that the eurozone economy is in danger of tipping into deflation, where falling prices cause consumers to delay making purchases. Deflation can lead to higher unemployment as companies lose revenue and are forced to lay off workers. Inflation is at a five-year low, leading many economists to warn that the eurozone economy is in danger of officially tipping into deflation. But even the current low level of inflation can cause consumers to delay making purchases, companies to lose revenue and unemployment to soar from already high levels.
Along with high unemployment, which was unchanged from July, the data keep pressure on the central bank to increase stimulus to the eurozone economy. The bank meets Thursday and is expected to give details of plans to buy private-sector assets in order to encourage more bank lending. Joblessness in the 18 countries in the zone remained at 11.5 percent in August, the European Union’s statistics office, Eurostat, also reported on Tuesday. Nearly one out of four youths in the eurozone is jobless.
But analysts do not yet expect the central bank to heed calls for a broader asset-purchase program that would include government bonds. Such action would provoke an outcry in Germany. The figures came two days before the European Central Bank is scheduled to discuss monetary policy, and they are sure to increase calls for more aggressive stimulus action. But analysts are nearly unanimous that none will be coming when the central bank’s governing council convenes in Naples on Thursday during one of its twice-yearly road trips outside Frankfurt.
Inflation in the 18 eurozone countries was held back by falling prices for energy and other commodities, Eurostat said. Inflation could pick up in the coming months as the decline in the value of the euro, which is near a two-year low against the dollar, makes imported fuel and other goods more expensive. The central bank faces an array of obstacles preventing it from undertaking the same kind of broad-based asset purchases that the United States Federal Reserve and the Bank of England have used to revive their economies.
The so-called core inflation rate, which excludes prices for food and energy because they tend to fluctuate often, fell to 0.7 percent from 0.9 percent, Eurostat said. The decline in that rate could be especially worrying for the central bank, because it is a more direct reflection of slack demand and the poor health of the eurozone economy. Since the financial crisis began in 2008, so-called quantitative easing has become a standard weapon in the central banking arsenal, except in the eurozone. That is true even though the central bank has consistently underestimated the severity of the decline in inflation.
Mario Draghi, the central bank president, remains constrained by divisions on its governing council, the fragmented structure of the eurozone financial system, and political resistance in Germany.
The central bank has offered banks four-year loans that are practically interest-free in an effort to restart lending, and it plans to begin buying private-sector assets in October. Mr. Draghi has promised to offer more details on the asset purchases on Thursday.
Purchases of government bonds, an essential component of full-blown quantitative easing, remains taboo for many Germans, who regard it as a way of transferring wealth from richer countries to poorer ones. They fear that, if any countries defaulted on their debts, the central bank would pass on the losses to other member countries.
“That’s the big question — if the E.C.B. can deliver something substantial,” said Zsolt Darvas, a senior fellow at Bruegel, a research organization in Brussels. “My theory is that they won’t.”
To be sure, inflation could pick up in the coming months because of the decline in the value of the euro, which on Tuesday sank below $1.26 for the first time since September 2012. A weak euro makes imported fuel and other goods more expensive for residents of the eurozone and contributes to higher inflation.
Slumping energy prices were one reason for the decline in inflation in September. But there was also a decline in the so-called core inflation rate, which excludes prices for food and energy because they tend to fluctuate often. Core inflation fell to 0.7 percent from 0.9 percent, Eurostat said.
The decline in that rate is potentially more worrying for the central bank because it is a more direct reflection of slack demand and the poor health of the eurozone economy.
“The E.C.B. will hardly be pleased at the outlook of very low inflation rate for a longer period of time,” Christoph Weil, an economist at Commerzbank, said in a note to clients.“The E.C.B. will hardly be pleased at the outlook of very low inflation rate for a longer period of time,” Christoph Weil, an economist at Commerzbank, said in a note to clients.
Although the unemployment rate in the eurozone was unchanged at 11.5 percent, the absolute number of jobless people fell by 137,000 to 18.3 million people. The incremental decline suggests that unemployment will fall in the coming months but at a painfully slow pace. The decline in the overall inflation rate to 0.3 percent was a preliminary estimate by Eurostat. The figure, which could be revised, was in line with analysts’ expectations but still well below the bank’s target of just under 2 percent.
The decline in consumer prices has been greater than the central bank expected. As recently as March, central bank economists forecast that inflation this year would average 1 percent. In June, they lowered the forecast to 0.7 percent, and in September, to 0.6 percent.
Gains in recent state elections by a conservative anti-euro party, the Alternative for Germany, could make the central bank even more cautious in the coming months. More aggressive monetary policy might nourish support for populist right-wing parties in Europe, which have fed on resentment toward European institutions like the bank.
“The E.C.B. is ready to do everything but buy government bonds,” Joachim Fels, chief global economist at Morgan Stanley, said last week during a meeting with a small group of journalists. “That shows how great the resistance is to this normal and widely used measure.”
To return to meaningful growth, economists say, the eurozone probably needs a combination of measures, including more-powerful stimulus from the central bank, like government bond buying; more government spending by countries that can afford it, like Germany; and deep changes in the regulations that govern business and labor in France and Italy.
The European Central Bank is preparing to buy so-called asset-backed securities, bank loans that have been bundled for resale on financial markets. It also plans to buy covered bonds, which are similar. The purchases are seen as a preliminary form of quantitative easing and a way to arrest a decline in bank lending.
By selling off existing loans, banks would raise money to issue new ones. But analysts doubt that the central bank would be able to find enough asset-backed securities and covered bonds that meet its quality standards and allow it to achieve the larger goal — pumping more money into the eurozone economy.
The region registered zero growth in the second quarter, threatening to interrupt a tentative decline in joblessness.
Although the unemployment rate in the eurozone was unchanged at 11.5 percent, the absolute number of jobless people fell by 137,000 to 18.3 million, Eurostat said. The incremental decline suggests that unemployment will fall in the coming months but at a painfully slow pace.
“We continue to expect only a modest and gradual fall in unemployment rate in the coming quarters,” analysts at Barclays said in a note to clients.“We continue to expect only a modest and gradual fall in unemployment rate in the coming quarters,” analysts at Barclays said in a note to clients.
As in previous months, Greece and Spain had the highest unemployment rates, with 27 percent and 24.4 percent. In both countries, though, the rate has been edging slowly downward. The rate for Greece is from June, the most recent reported.As in previous months, Greece and Spain had the highest unemployment rates, with 27 percent and 24.4 percent. In both countries, though, the rate has been edging slowly downward. The rate for Greece is from June, the most recent reported.
Austria, with 4.7 percent, and Germany, with 4.9 percent, had the lowest unemployment rates in August.Austria, with 4.7 percent, and Germany, with 4.9 percent, had the lowest unemployment rates in August.
Unemployment among working-age people under 25 remained at 23.3 percent in the eurozone. In Greece and Spain, the jobless rate among youths remained above 50 percent, while in Italy and Croatia, it was over 40 percent. Unemployment among those under age 25 remained at 23.3 percent in the eurozone. In Greece and Spain, the jobless rate among youths remained above 50 percent, while in Italy and Croatia, it was over 40 percent.
Mr. Draghi has emphasized in recent weeks that he cannot solve such economic problems alone. He has pleaded with eurozone leaders to cut taxes and red tape and to remove impediments to entrepreneurship and hiring.
“No monetary — and also no fiscal — stimulus can ever have a meaningful effect without such structural reforms,” he told members of the European Parliament on Sept. 22.
Indeed, there is evidence that bank lending is held back not by a shortage of credit but by a dearth of creditworthy borrowers who are confident enough about the future to want to invest in new employees and in expanding their businesses.
“There is no demand, because nobody is doing anything,” said Stefano Micossi, director general of Assonime, an Italian business group. “Everybody is waiting.”