The rate of inflation in the euro area turned negative last month for the first time since May 2016, increasing the chances of the European Central Bank pumping more stimulus to raise prices that had not reached the target set for more than 7 years. The annual inflation rate fell in 19 countries that deal in the euro. To “minus” 0.2 per cent last August from 0.4 per cent in the previous July, coming less than analysts ’expectations of a 0.2 per cent reading, and significantly lowering the European Central Bank’s target by a number just under two per cent.
And the concern of policy makers is that the core inflation rate has tumbled, indicating that the deepest recession in the bloc’s living memory is not only a temporary shock. It may even prove that its impact on consumer prices will be greater and extend for a longer period.
The rate of inflation, which excludes more volatile fuel and unprocessed food prices and is closely monitored by the bank, fell to 0.6 percent from 1.3 percent, while a narrower measure that excludes alcohol and tobacco fell to 0.4 percent from 1.2 percent. The two are far from analysts’ expectations.
“The deflationary effects of the crisis cannot be avoided, at least in the coming quarters,” said Frederic Doucrosette of Pest Wealth Management. He continued, “We adhere to our expectation that the European Central Bank will raise the emergency procurement program for the pandemic again by 500 billion euros, probably next December,” according to “Reuters”.
Energy prices tumbled 7.8 percent year-on-year in August after falling 8.4 percent in July. Non-industrial goods prices also declined by 0.1 percent, following a 1.6 percent increase in July.
On the employment front, the news is also not looking good after containment measures have shut down entire sectors of the economy, which is struggling to resume activity. And so on; The unemployment rate in the euro zone in July was 7.9 per cent, compared to 7.7 per cent in June, according to Eurostat, which confirms that its calculation does not fully reflect the consequences of isolation.
As for the 27 European Union countries as a whole, Eurostat data for July showed that the unemployment rate rose to 7.2 per cent, compared to 7.1 per cent during the previous month. The bureau estimates that 15.2 million people were unemployed in July in the European Union in general, including 12.8 million in the euro area. But on a positive note: Tuesday’s survey showed that manufacturing activity in the euro zone remained on a recovery path last month, but factory managers were concerned about investment and hiring workers with the outbreak of the Coronavirus pandemic.
Industrial production, which had not experienced a sharp decline like the services sector during the height of the epidemic, rose for the second month in a row. The final reading of the IHS Markit Purchasing Managers ’Index in the manufacturing sector fell to 51.7 from 51.8 in July, in line with the preliminary reading released earlier, and comfortably rising above the“ 50 ”mark that separates growth from contraction.
An index measuring change in production rose to 55.6 from 55.3 points, just below the initial reading of 55.7, but at the highest level since April 2018. This indicator feeds a composite PMI slated for release on Thursday and is seen as A good measure of the durability of the economy.
Although optimism is at its highest in two years, factories have reduced the number of workers and ordered fewer raw materials. The employment index has fallen far from parity to 44.2 points, although it is close to that level compared to the July reading of 42.9. According to a Reuters poll of economists last month, a full recovery from the deepest recession in the euro area on record will take two years. Or more.