Eurozone inflation drops towards 5-year low

<p>Eurozone inflation fell 0.3 per cent during August.</p>

Inflation in the eurozone is nearing a five-year low after it decreased once again during August.

Figures from Eurostat showed a 0.3 per cent drop over the course of the month adding to a 0.4 per cent decrease in July. It has prompted fear of a deflationary spiral and puts pressure on the European Central Bank (ECB) to take steps to stimulate the economy. Lower food and energy prices have been highlighted as the defining factor behind this latest drop in inflation.

While inflation continues to fall, unemployment is soaring. Official figures released in July showed a record high of 11.5 per cent as more and more people across the continent struggle to find work. There had been slight improvement in nations such as Spain, Portugal and Ireland which had been hit hard by the economic downturn felt from the recession started in 2008.

Speaking to the BBC, Timo del Carpio, European economist at RBC, said: "Along with Germany, these countries accounted for the bulk of the improvement seen over July.

"The notable exceptions this month were once again the usual culprits. France's headline rate edged up to 10.3 per cent, driven by a 19,000 increase on the month. More notably, Italy's unemployment rose to 12.6 per cent, once again a hair's breadth short of its record peak."

The ECB is expected to meet new Thursday (September 4th) to decide whether or not to change the current interest rates across the eurozone. In the UK the Bank of England's Monetary Policy Committee (MPC) was split on the same decision for the first time since July 2011.

Interest rates on British shores have remained at 0.5 per cent since March 2009 but minutes from the August 6th and 7th meeting showed that two members of the MPC voted in favour of a 0.25 per cent increase to 0.75 per cent.

Find up to date information on the FTSE 100 and spread betting strategies at City Index.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.