Euro zone inflation slows in September, weakens euro versus dollar

Tue Sep 30, 2014 12:24pm EDT
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By Jan Strupczewski

BRUSSELS (Reuters) - Euro zone inflation slowed again in September as some food and energy prices fell, a first estimate showed, reinforcing expectations the ECB will ease policy further and sending the euro to a two-year low.

Eurostat said on Tuesday that consumer prices in the 18 countries sharing the euro rose 0.3 percent year-on-year, less than the 0.4 percent increases seen in August and July. The September reading was in line with market forecasts.

The European Central Bank wants to keep headline inflation at just under 2 percent over the medium term. Persistently low price growth underscores the difficulty of hitting that target while the euro zone economy continues to stagnate.

The euro sank below $1.26 for the first time since September 2012 after the data, hitting a low of $1.25715 on trading platform EBS and down almost 1 percent on the day.

Euro zone shares rose on expectations the ECB will introduce new stimulus measures to boost the region's flagging economy.

"With actual output below potential and weak wage growth in many euro zone countries, inflation will remain subdued," said Tomas Holinka, economist at Moody's Analytics.

"The euro area economy stalled in the second quarter and the recovery prospects are fading. With tougher sanctions against Russia, risks are weighted to the downside.

"The euro zone’s weaker than expected performance fuels uncertainty about economic recovery and fears about the threat of deflation," he added.   Continued...

A woman stops to look in the window of a shop in London March 25, 2014. REUTERS/Luke MacGregor