ECB Says Inflation To Remain Negative Or Low Until November

(RTTNews) - Eurozone inflation is likely to remain negative or low until November and accelerate at the turn of the year, mainly due to base effects linked to the fall in oil prices late last year, the European Central Bank said in its latest economic bulletin released Thursday.

Inflation in the 19-nation currency bloc turned negative in September at -0.1 percent. According to the preliminary estimates from Eurostat, inflation reached zero in October.

The ECB aims to keep inflation 'below, but close to 2 percent'. After leaving rates and the size of asset purchases unchanged in October, ECB President Mario Draghi strongly hinted that the bank may boost its stimulus in December as policymakers are increasingly concerned over the persistence of negative inflation.

The bank is ready to adjust its EUR 1.1 trillion asset purchase programme, which was launched in March, when needed. The programme is set to run until September 2016, but the bank has said it is ready to extend it beyond that if needed or until inflation returns to its aim.

The ECB is widely expected to boost the size of its monthly asset purchases to EUR 80 billion from EUR 60 billion.

Policymakers also discussed interest rate cuts in October, Draghi said, especially the possibility of lowering the deposit rate that is already negative.

The economic bulletin largely echoed Draghi's comments from the post-decision press conference in Malta.

The bank expects inflation to pick up further next year and in 2017, led by the expected economic recovery, the pass-through of past declines in the euro exchange rate and the assumption of somewhat higher oil prices in the years ahead as signaled by oil futures markets.

"However, there are risks stemming from the economic outlook and from financial and commodity market developments which could further slow down the gradual increase in inflation rates towards levels closer to 2 percent," the bank said.

Meanwhile, the underlying inflation has stabilized following an earlier pick-up, the bank noted.

"The effects of the lower euro exchange rate compared with early this year continue to pass through, but some of the loss of momentum in the pick-up in underlying inflation can be attributed to a recent strengthening in the euro exchange rate and the indirect effects of recent further declines in oil prices," it added.

The bulletin also had a special box on trade links between the euro area and China. "While trade spillovers from a continued slowdown of economic activity in China are likely to have only a modest impact on euro area GDP, other spillover channels can potentially be important," the ECB said.

The impact on the euro area of a potential further slowdown in China ultimately hinges on the extent to which this slowdown spills over to other emerging markets more generally, and the degree to which the resulting loss of confidence affects global financial markets as well as global trade, the bank added.