Eurozone economy grows at muted rate as inflation picks up

LONDON (AP) " Economic growth in the 19-country eurozone remained modest in the third quarter, official figures showed Monday, the latest sign that the single currency bloc failed to fully capitalize on a raft of positive tail winds such as low oil prices and various central bank stimulus measures.

Figures from Eurostat, the European Union's statistics agency, showed that the eurozone, which consists of the 19 countries that use the euro as their currency, eked out another quarter of economic growth of 0.3 percent in the July to September period.

Though it had to contend with uncertainty generated by Britain's decision to leave the EU, the eurozone's economic performance remains fairly lackluster. If repeated in the final quarter of the year, the eurozone economy will register growth of only 1.5 percent in 2016.

A country-by-country breakdown of the region's growth rates was not provided, but the region overall will have likely relied on Germany, its powerhouse economy. Many countries, including numbers 2 and 3, France and Italy, have shown few signs of emerging from their years of stagnation, while those at the heart of the region's debt crisis, notably Greece, still have budgetary problems.

Growth of 0.3 percent is unlikely to make much of a dent in the region's unemployment rate, which still stands at a high 10.1 percent, more or less double the rate that exists in the United States. It's also not high enough to really stoke much-needed inflationary pressures in the eurozone.

Boosting growth and reducing unemployment would help get inflation towards the European Central Bank's target of just below 2 percent by increasing wages and living standards.

"Growth is solid but ... still insufficient to generate significant inflationary pressures," Cathal Kennedy, European economist at RBC Capital Markets, said.

Eurostat also revealed Monday that the eurozone's inflation rate edged up to 0.5 percent in the year to October from 0.4 percent the previous month. That's the highest since June 2014, when inflation was also 0.5 percent, but inflation still is low by historical standards and remains way below the European Central Bank's target of just below 2 percent.

The increase in the headline rate was due largely to energy prices " oil especially " having rebounded over the past few months. In the year to October, energy prices were only 0.9 percent lower compared with 3 percent in September and a staggering 8.5 percent lower the year before.

In recent months, oil prices have started to rise again, partly because of a commitment by the Organization of the Petroleum Exporting Countries, or OPEC, to push through a production cut next month.

The headline crude oil rate stands at around $50 a barrel. Though way down on the $100-rate seen back in the summer of 2014, it's up substantially from the start of this year when it fell below $30 for the first time in more than a decade.

The increase in the headline inflation rate will be welcomed " up to a point " by policymakers at the European Central Bank, which has enacted a series of stimulus measures over the past couple of years largely to avoid a sustained period of falling prices. So-called deflation can weigh on economic activity if consumers and businesses opt to delay spending in the hope of cheaper prices down the line.

However, the ECB, which has cut to zero its benchmark interest rate, still has a way to go before inflation is where it would like it to be. The ECB's first priority is price stability " that is, avoiding both extremes of inflation or deflation.

A more detailed look at Monday's figures showed that underlying inflation pressures in the eurozone remain benign. After stripping out the volatile items of food, energy, alcohol and tobacco, inflation was unchanged at 0.8 percent.

"This low rate of core inflation suggests that there really are no inflationary pressures in the eurozone at present, nor are any likely to show up soon," Jay H. Bryson, global economist at Wells Fargo Bank, said.

Given the underlying picture, most economists think the ECB will indicate in December that it will extend its 80 billion euros ($88 billion) in monthly bond purchases beyond March 2017, currently the earliest possible end date. The bank has said the purchases, which are intended to boost lending by keeping market interest rates low, will continue until inflation rises to more acceptable levels, but has left the end-date otherwise open.

This story has been automatically published from the Associated Press wire which uses US spellings

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