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EMU Inflation at 5-Year Low, Euro Falls to 24 Month Bottom

Posted by Joseph Trevisani on Sep 30, 2014 10:34:00 AM

Inflation in the euro zone in September dropped to its lowest rate in almost five years pushing the euro to a 24 month trough against the dollar and highlighting the European Central Bank's recent measures to avert deflation in the currency union.

The consumer price index rose but 0.3 percent over the past year, the smallest annual gain since a -0.1 percent  decline in October 2009 as the European economy was recovering from the deflationary price collapse caused by the financial crisis in late 2008, according to Eurostat the European Union’s statistical office in Brussels.

The result matched both the median prediction in the Bloomberg survey of economists and the rate in August and was down from 0.4 percent in July.  Inflation has fallen by more than half this year from February's 0.8 percent high.

The euro plunged from 1.2662, the prior two year low just before the release to 1.2595 within 35 minutes and reached 1.2571 in Europe before recovering to 1.2633 in early New York trading. 

Euro zone inflation has fallen steadily for three years from a peak of 3.0 percent in November 2011 and was last at the ECB's 2.0 percent target rate in January 2013.  

The European Central Bank measures headline inflation, including food and energy prices, unlike the Federal Reserve which cites the core rate in its economic assessment. 

The ECB meets this Thursday October 2nd and President Mario Draghi is expected to reveal the details of its asset-purchase plan for asset -backed securities and covered bonds announcing at the last bank meeting earlier this month.   The bank lowered its main refinance rate and deposit rate 0.1 percent to 0.05 percent and -0.2 percent respectively, the so-called negative interest rate, at its September 4th meeting.

 Core inflation, minus food and energy proceeds slowed to 0.7 percent in September form 0.9 percent in August, matching the forecast and equaling the historical  lows in May and March of this year and December last year.  

Euro zone economic statistics have been declining for six months.  Economic confidence skidded in September to 99.9 its lowest reading since last November, while optimism in industrial sector slipped to its weakest level in a year and consumer confidence was at its lowest ebb since February, according to the European Commission.


Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

eur sept 30

emu cpi sept 30


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