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Eurozone Inflation Stable In August

eurozoneflag aug23 18sep19 lt

Eurozone inflation was stable in August at its lowest level in nearly three years, latest data from the Eurostat showed on Wednesday, confirming the preliminary estimates released on August 30.

Headline inflation was 1 percent in August, the same as in July. The rate was the lowest since November 2016.

Price growth remained below the European Central Bank's target of "below, but close to 2 percent."

Core inflation that excludes energy, food and tobacco, remained unchanged at 0.9 percent, in line with the flash estimate.

The annual increase in food, alcohol and tobacco prices rose to 2.1 percent from 1.9 percent, and services cost inflation climbed to 1.3 percent from 1.2 percent.

Energy prices fell 0.6 percent, after a 0.5 percent rise. The increase in prices of non-energy industrial goods remained unchanged at 0.4 percent.

Policymakers are concerned about the re-anchoring of inflation expectations at a low level, the outgoing European Central Bank President Mario Draghi said after he unveiled a stimulus package with several measures including a reduction in the deposit rate to -0.50 percent and a restart of asset purchases, last week.

In its latest projections, the ECB staff cut the euro area inflation forecast for this year to 1.2 percent from 1.3 percent. The outlook for next year was slashed to 1 percent from 1.4 percent and the projection for 2021 was trimmed to 1.5 percent from 1.6 percent.

The ECB stimulus also included a significant change in the wording of forward guidance on interest rates that removed the reference to any specific time period until which the bank expects rates to remain low.

That said, the bank continued to signal that interest rates can be lowered further. The ECB now wants the inflation convergence, to its near 2 percent target, to consistently reflect in underlying inflation trends to start considering tightening.

The central bank changed the terms for its new TLTRO-III loans and extended their maturity to 3 years from 2. The bank also introduced a tiering system for reserve remuneration that will exempt part of banks' excess liquidity holdings from the negative deposit facility rate.

Eurozone interest rates were raised last in July 2011 by 25 basis points.

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