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Eurozone Plunges Back to Deflation in September

A nearly 9% drop in energy prices might be the cause of the eurozone’s return to deflation after close to six months.

Eurozone Plunges Back to Deflation in September 

Inflation, which causes food and energy prices to decrease, rose by an estimated 0.9%, where it was in August, amidst antiticipations of a deep deflation in the region. 

According to Eurostat, a statistics agency, unemployment rates at the close of September were at 11% and remained unchanged from August.

At the start of September, the president of the European Central Bank, Mario Draghi, forecast a possible deflation across the region.

Overall, according to bank estimates, inflation is expected to linger at about 0.1% in 2015 and in 2016 rise to 1.5% and to 1.7% in 2017.

Under the Quantitative Easing programme initiated by the European Central Bank, up to £44bn (€60bn) is being spent each month to buy assets over the next year with the goal of reducing inflation and boosting prices.

Recovery backtracking

Although the Eurozone experienced some growth alongside inflation during the first few months of 2015, these signs of recovery could be backtracking as is evidenced by the gradual plunge to deflation.

A slow Chinese economy is expected to have adverse impact on the US economy and those of Europe, especially the most vulnerable ones. In Spain for example, the economic growth is expected to drop from 1% down to 0.8%, with unemployment rates showing no real recovery.

A return to deflation and the slow recovery could require that the ECB continue with its Quantitative Easing measure past September 2016.

 “The ECB will likely continue with its asset purchase programme beyond September next year, which was their set end-date,” Timo del Carpio, an economist at RCB Capital Markets echoed these expectations.

Such a decision may however need to wait until December when the governing council will be meeting.

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