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Sep 30, 6:37 AM EDT

Eurozone consumer prices falling once again due to cheap oil

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LONDON (AP) -- Consumer prices across the 19-country eurozone fell in September for the first time in half a year as energy prices tanked, official figures showed Wednesday, in a development that's likely to ratchet up pressure on the European Central Bank to give the region more stimulus.

The 0.1 percent annual decline reported by Eurostat, the EU's statistics office, was widely anticipated following the recent drop in global oil prices. Energy prices were a whopping 8.9 percent lower in September than the year before, more than the 7.2 percent drag registered in August.

The impact of energy costs is evident in the fact that, when they are stripped out of the calculations, consumer prices were 1 percent higher in the year to September. If food, alcohol and tobacco are also taken out, the eurozone's so-called core inflation rate stood at an unchanged 0.9 percent.

Though anticipated, the negative headline rate is likely to be a disappointment to policymakers at the ECB who this year launched a 1.1 trillion euro ($1.2 trillion) stimulus program in the hope of getting inflation back toward target. The ECB aims for an inflation rate of just below 2 percent.

For a while, the stimulus appeared to be helping to bring inflation back up. It weakened the euro, making imports pricier, and it helped boost the economy by making exports more competitive and keeping borrowing rates low. In April, a four-month run of negative inflation came to an end.

Falling prices sound good in principle and can be, if temporary - many economists think the current period of weak or negative inflation is a boon to economic activity since it's largely due to weak oil prices. Lower fuel costs mean consumers and businesses have more money to spend elsewhere.

The problem is when falling prices become entrenched in an economy. So-called deflation can weigh on economic activity, as in Japan in recent years. Falling prices over a long period of time can prompt consumers to delay spending in hopes of bargains down the line and make businesses reluctant to invest and innovate.

There has been some evidence that the eurozone economy picked up some pace this year but it still lags the growth of the U.S. It still faces debt problems in many countries, notably Greece, that mean governments have to limit their spending. And the eurozone is going to need a lot of economic growth over a sustained period if unemployment is to come down significantly. Eurostat said Wednesday that unemployment across the region fell by a modest 1,000 in August to 17.60 million, which left the jobless rate at 11 percent.

ECB President Mario Draghi has said the bank stands ready to provide more stimulus for the eurozone. Earlier this month, he said the bank could increase the "size, composition and duration of the program."

The ECB is pumping 60 billion euros a month in newly printed money into the eurozone economy by buying financial assets, mainly government bonds. The program is slated to run at least through September 2016.

Bill Adams, senior international economist at PNC Financial Services Group, said the drop in consumer prices won't be enough to prompt the ECB to take further action just yet.

"But if headline inflation remains very low in 2016, as seems increasingly likely, the central bank will see an open door to extending its program beyond the September 2016 minimum to which it has pre-committed," he said.

In a note Wednesday, credit ratings agency Standard & Poor's said it expects the ECB to extend its stimulus program "most likely until mid-2018" and that it could reach 2.4 trillion euros, more than double the current plan.

Though the agency expects the eurozone's steady recovery to extend into the next couple of years, it said the slowdown in the Chinese economy could lop off 0.8 percent from eurozone growth by the end of 2017. For a region that's spent much of the past few years in recession and struggling to grow more than 2 percent a year, that's a problem.

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