Eurozone slides into deflation for the first time in four years

The eurozone slid into deflation for the first time in four years, heaping pressure on the European Central Bank to increase its support for the bloc’s faltering economic recovery from the coronavirus pandemic.

Headline consumer price inflation was minus 0.2 per cent in August, down from an increase of 0.4 per cent the previous month, according to data released by Eurostat on Tuesday, ahead of the ECB’s policy meeting next week.

Analysts blamed the fall on lower oil prices, the recent cut in Germany’s value added tax rate and the delayed summer sales in France, Italy and Belgium. Retailers in those countries usually cut clothing prices heavily between June and July to clear out summer ranges before the autumn season, but this year the sales were delayed until August.

“It’s quite worrying,” said a member of the ECB governing council. “There had been a peak in textile sales over the summer but that seems to have evaporated now.”

Annual price growth in services also fell to an all-time low of 0.7 per cent in August. Core inflation, which excludes energy, food and tobacco prices, fell to a record low of 0.4 per cent in August, down from 1.2 per cent in July.

FT Weekend Digital Festival

Join the FT for 3 days of digital debate and…

Read The Full Article