Falling prices flash warning light for Europe's economy
FRANKFURT, Germany (AP) — A startling fall in consumer prices and a stronger euro have increased pressure on the European Central Bank to provide another blast of monetary stimulus in support of a drawn-out economic rebound from the pandemic recession.
A 0.2% annual drop in prices in August in the 19 countries that use the euro underlined that demand from unsettled consumers across the economy remains weak despite the reopening of many businesses. While it also reflected one-time effects such as delayed summer sales, the drop is more evidence of how severely the pandemic has held back business activity in Europe, which along with the U.S. and China is one of three major pillars of the global economy.
The economy plunged by a dizzying 11.8% in the second quarter from the first quarter. And while experts say that the economy's recovery will be determined mainly by governments' ability to contain the pandemic, the ECB is doing what it can to help.
The focus after Thursday's policy meeting will be on President Christine Lagarde’s statements on the inflation outlook and the stronger euro, another risk factor for the economy because it can make life harder for exporters.
The bank's governing council is expected to keep interest rates unchanged at record lows and to leave its bond-purchase stimulus program at the current level of 1.35 trillion euros ($1.6 trillion). That stimulus program, which regularly injects newly printed money into the economy, still has 850 billion euros left to be used, giving the bank plenty of ammunition for now. Analysts, however, are predicting that the bank's leadership could add to that amount sooner than expected.
Analysts at Morgan Stanley originally expected more stimulus only next year. But after last week's “deflationary surprise, and with the drag from a stronger euro, we will be...
