"We see no inflation risks. There is no reason for the European Central Bank to act on inflation. It can stay with its expansionary policy."
- Christoph Weil, European economist at Commerzbank
Amid decent signs of economic amelioration in the 17-nation area that has single currency in circulation, the latest inflation report is supporting the case for the ECB to keep borrowing costs at current level to stimulate the economy. European statistics office Eurostat said consumer prices stood at the annual rate of 1.1% in September, down from 1.3% recorded in August, and below analysts' projection, who expected the same figure as a month earlier. This is the lowest level since February 2010, which is far below the ECB's target of slightly under 2%. September's drop was mainly due to a decline in energy prices, which slid 0.9% on the year, while costs of food, alcohol and tobacco slowed significantly to 2.6% over the same period.
As to the separate countries, weak figures were published in almost each of European economies, with Spain CPI falling to the lowest in almost four years, on fading effects of last year's sales tax hike. Furthermore, inflation in Europe's largest economy, Germany, decelerated to 1.4%. Below-inflation pay deals in some economies battered by the strict austerity measures that have crushed demand for consumer goods, preventing businesses from raising prices rapidly. On Wednesday the ECB will hold its monthly rate-setting meeting, where Draghi is likely to keep borrowing costs at present level. Eurostat's report is the latest evidence the recovery lack momentum.
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