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Eurozone inflation drops towards 5 year low

Article By: ,  Financial Analyst
August 29, 2014 5:15 PM

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.

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