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Euro zone deflation threat 'declining'

Inflation in the euro zone is expected to stabilise further and the threat of deflation in the region is declining, according to a report by the Economic Cycle Research Institute today.

The Eurozone Future Inflation Gauge (EFZIG) edged down in July to 84.6 from 85.0 in June, but stayed above an all-time low seen in March.

The index, which aims to predict cyclical turns in inflation, was pulled down by declining inflationary pressures in Germany, the bloc's biggest economy.

"Its latest dip notwithstanding, the EZFIG has begun to stabilise, after plummeting to an all-time low in March. If this pattern persists, consumer price deflation in the euro zone may become less of a threat," ECRI said in a release.

The European Central Bank left rates on hold at 1.0 per cent yesterday and said it expected inflation to remain subdued and price stability to be maintained in the medium term.

Consumer prices fell 0.2 per cent in August after dropping 0.7 per cent in July but are forecast to skip higher in the final months of the year, albeit holding well below the ECB's 2.0 per cent target ceiling.