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Eurozone inflation turns negative for first time in four years

Eurozone inflation turns negative for first time in four years

Mubasher: Eurozone inflation has fallen into negative territory in August for the first time in four years since May 2016 due to the coronavirus (COVID-19) pandemic, Reuters reported.

The annual inflation in the 19 countries sharing the euro plunged to minus 0.2% in August, when compared to 0.4% in July, downgrading analysts’ expectations for 0.2% and far from the European Central Bank's (ECB) target of 2%.

Without including volatile fuel and unprocessed food prices, inflation declined to 0.6% last month from 1.3% in July, and upon excluding alcohol and tobacco as well, inflation retreated to 0.4% from 1.2%.

Meanwhile, the energy prices decreased by 7.8% year-on-year (YoY) in August, following an 8.4% decline in July, while the prices of non-industrial goods went down 0.1% after a 1.6% rise in July.

Pictet Wealth Management Strategist, Frederik Ducrozet, said: "There is no escaping the disinflationary effects of the crisis, at least over the coming quarters. We stick with our view that the ECB will ultimately increase the Pandemic Emergency Purchase Programme envelope again, most likely by EUR 500 billion in December."

To alleviate the COVID-19 economic impact on the eurozone, the ECB has launched a stimulus package, under which banks have received EUR 1 trillion loans at negative interest rates.

Some economists expected that the ECB is preparing to expand stimulus even further.