August's 0.2% inflation nudges eurozone toward stimulus

German Chancellor Angela Merkel on Monday addresses her annual summer news conference in Berlin. Inflation in the 19-nation eurozone was stable in August at an annual rate of 0.2 percent.
German Chancellor Angela Merkel on Monday addresses her annual summer news conference in Berlin. Inflation in the 19-nation eurozone was stable in August at an annual rate of 0.2 percent.

BRUSSELS -- Inflation in the 19-nation eurozone was stable in August at an annual rate of 0.2 percent, an official report shows -- another weak figure that puts the European Central Bank closer to doing more economic stimulus.

The European Union's statistics agency, Eurostat, said Monday that a large drop in energy prices made up for increases in the costs of food, alcohol and tobacco, services, and industrial goods.

The inflation figures remain far below the European Central Bank's aim for an annual rate of just under 2 percent.

A prolonged period of low inflation or an outright drop in consumer prices is a sign of weak demand and can slow an economy by encouraging consumers to save money. It can also make it harder for eurozone governments to reduce debt and improve their cost competitiveness relative to other countries.

The European Central Bank has vowed to push up weak inflation and stimulate growth through a $1.2 trillion stimulus program dubbed quantitative easing. The bank is pushing newly printed euros into the economy by purchasing $67 billion a month in government and corporate bonds through September 2016.

European Central Bank President Mario Draghi has said the bank intends to stick with the program until inflation turns up convincingly, implying the stimulus could be continued beyond September next year. The central bank publishes new inflation projections after its governing council meeting Thursday, which could provide clues to the bank's future stance.

Separately, France's economy minister said the eurozone's woes call for a strong eurozone "economic government" with its own budget, and is arguing that preserving Europe's shared currency will require financial transfers from its strongest countries.

In an interview with German daily Sueddeutsche Zeitung, Emmanuel Macron was quoted as saying that a commissioner with far-reaching powers should be put in charge of an "economic government" that would be able to secure financial transfers for countries in crisis or promote reforms.

The idea is to help smooth recessions in the eurozone, where sharing a single currency means countries cannot seek other remedies, such as letting their currency devalue to increase exports.

Germany, Europe's biggest economy, is deeply averse to creating a "transfer union." But Macron said if eurozone members continue to object to "any form of financial transfer in the currency union, we can forget the euro and the eurozone."

France's proposal requires treaty changes for which there is no appetite among European Union leaders, European Parliament President Martin Schulz said Monday.

Euro-region governments can only act within existing law for now to rein in "macroeconomic imbalances," Schulz told reporters in Berlin. He was responding to Macron's push for Germany to drop its "taboos" on financial transfers.

"You need treaty changes for that and I don't see these treaty changes at present," Schulz said after attending a meeting of Germany's Social Democratic Party, which is Chancellor Angela Merkel's junior coalition partner. Existing euro-area budget rules could be "expanded" and the region's banking union deepened, he said.

As euro-area governments try to draw lessons from the debt crisis that spread from Greece in 2010, attention is focused on France and Germany, the region's two biggest economies. Germany and France are discussing how to promote "economic convergence," Merkel said at a separate news conference.

Information for this article was contributed by The Associated Press and by Rainer Buergin and Patrick Donahue of Bloomberg News.

Business on 09/01/2015

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