Eurozone inflation fell below 1% for the first time in nearly three years last month, according to the first estimate of consumer price gains in the single currency area by the region's statistics office, in a move that raises more concerns for growth prospects in the world's biggest economic bloc.
Headline inflation for the month of September was estimated to have risen 0.9% last month, Eurostat said, compared to the 1% advance recorded in August, as energy costs tumbled amid a collapse in crude oil prices on world markets.
The September reading, the lowest since November 2016, not only sits well below the European Central Bank's target of an inflation rate of "just below 2%, but also suggests that Germany's slide towards recession could further erode any glimmer of hope that that broader Eurozone economy can avoid the same fate.
"The economic uncertainty means businesses are still very reluctant to increase their margins, and so recent positive wage growth developments are not translating into higher inflation," said ING's senor Eurozone economist Bert Colijn. "This has been the case for some time now but as recession fears will likely loom for at least a few months to come, it seems unlikely that core inflation will improve significantly in the months ahead."
The euro was marked close to a two-and-a-half year low of 1.0898 against the U.S. dollar following the inflation release, while benchmark 10-year German bund yields, a proxy for risk-free borrowing rates in Europe, were marked at -0.517%.
Last month, the ECB pushed one of its key interest rates deeper into negative territory, and re-started its controversial quantitative easing program, while warning that growth and inflation risks in the region remain "tilted to the downside", owing to the "prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets."
"The Governing Council reiterated the need for a highly accommodative stance of monetary policy for a prolonged period of time and continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry." ECB President Mario Draghi said at the time. " In fact, incoming information since the last Governing Council meeting indicates a more protracted weakness of the euro area economy, the persistence of prominent downside risks and muted inflationary pressures."
The ECB increased the charge it applies to regional lenders holding cash in the central bank's overnight deposit facility by 10 basis points to -0.5%, matching the lowest rate withing the Bank's targeted lending operations. No changes were made to the Bank's main refinancing rate, which sits at 0%.
It also said it would re-start the dormant quantitative easing program on November 1 with monthly purchases of government, agency and corporate bonds of around €20 billion, an run them "for as long as necessary", and would only end when the Bank starts raising its key interest rates.