U.S. Markets

Euro zone inflation stable in August, against expectations of rise

BRUSSELS (Reuters) - Euro zone inflation was stable in August, against expectations of a slight rise, as food, industrial good and services prices increased by less than in July, piling more pressure on the European Central Bank to act.

European Union (EU) flags fly in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 3, 2015. To match Insight GERMANY-BANKS/ REUTERS/Ralph Orlowski/File Photo - RTX2NNWU

Inflation in the 19 countries sharing the euro was 0.2 percent, the same rate as in July, EU’s statistics agency Eurostat said on Wednesday in its first estimate.

The decline in energy prices was not as steep as a month earlier, but prices of food, industrial goods and of services rose by less.

The rate was below market expectations from a Reuters poll of 50 economists, which had an average of a 0.3 percent increase.

Core inflation, which according to the ECB’s definition excludes the most volatile components of unprocessed food and energy, was also unchanged at 0.8 percent, again 0.1 percentage points below market expectations.

The inflation rate remains far from the ECB’s target of just below 2 percent and its failure to rise is bad news for the central bank which is seeking to prevent a deflationary spiral.

The ECB has been buying 80 billion euros ($89.2 billion)worth of assets a month to pump money into the economy. Interest rates have been cut below zero and free loans offered to banks.

Its rate-setting Governing Council meets next week, although most investor do not expect further policy measures until the fourth quarter.

Excluding energy, food, alcohol and tobacco products, the August inflation rate dipped to 0.8 percent.

Energy prices dropped by 5.7 percent year-on-year, compared with 6.7 percent in July.

Prices in food, alcohol and tobacco products went up 1.3 percent, against 1.4 percent in July.

In the services sector, the largest in the euro zone economy, prices were 1.1 percent higher year-on-year, from 1.2 percent in the previous month.

Eurostat’s flash estimate for the month does not include a monthly calculation.

($1 = 0.8971 euros)

Reporting By Philip Blenkinsop; editing by Alastair Macdonald