- Michael Hewson, CMC Markets
The series of disappointing data from the Euro zone seems never ending. Inflation in the Euro bloc's biggest economy remained at a dangerously low level in September, according to the Federal Statistics Office, keeping the European Central Bank under pressure to step up efforts to revive the region's economy. The annual inflation rate in Germany was unchanged at 0.8% since July. The last time German inflation was below 0.8% was in February 2010. The German data is of a particular importance as it may indicate how Thursday's flash CPI figure for the Euro zone as a whole may look like.
Inflation has been low across the 18-nation Euro area, sparking concern the region could fall into deflation, a sustained and widespread decline in prices that undermines economic activity and threatens job losses. While dropping prices may sound good for households, deflation can cause a vicious spiral where businesses and consumers delay purchases, sapping demand and resulting in layoffs of workers. Amid bleak economic activity in the Euro zone's powerhouse, the German Finance Ministry cut its growth outlook to 1.2% from 1.8% for 2014, and its forecast for 2015 to 1.3% from 2%. Subdued German sentiment and a recent streak of weak fundamentals coupled with low inflation expectations, raises the likelihood of the European Central Bank turning to printing money to purchase government bonds, known as quantitative easing.
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