Inflation in the eurozone edges up

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Inflation in the 18 countries sharing the euro edged up slightly in October, reinforcing the view that the European Central Bank will hold fire on any additional policy action at its meeting next week.

A first estimate yesterday from the European Union’s statistics office showed consumer prices in the eurozone rose by 0.4 per cent in October, in line with market expectations. A day earlier, German data showed inflation in Europe’s largest economy slowing in October to 0.7 per cent, its lowest reading since May.

Nick Kounis, head of macro research at ABN AMRO, said a number of factors meant ECB action as early as next week was unlikely, but he expected further measures by the first quarter of next year.

“We still think that the ECB is likely to further step up its monetary easing,” he said “If you get any kind of economic shock with inflation this low, there is a risk, albeit a small risk, of deflation.”

ECB policymakers still appear somewhat divided on the likelihood of deflation in the euro area.

The central bank’s chief economist Peter Praet said that the possibility was limited, but Governing Council Member Ignazio Visco said yesterday that policymakers needed to remain cautious.

“We are not in deflation but we cannot ignore the concrete risk of it,” the Italian said. The statistics office said prices rose fastest for services, up 1.2 per cent.