By Paul Hannon and Todd Buell
German consumer prices rose at the slowest annual pace in almost
five years in November, while prices fell in Spain and Belgium,
fueling expectations that the European Central Bank will soon
conclude that more aggressive stimulus measures are needed.
In another setback for policy makers, figures also released on
Thursday showed bank lending to businesses continued to decline in
October, despite a series of measures launched since June designed
to increase the flow of credit.
However, there are signs the eurozone economy will continue to
grow in the final quarter of a disappointing 2014, albeit at a very
weak pace, with German unemployment falling, and eurozone business
confidence on the rise.
Recent comments by senior officials have heightened investor
expectations that the central bank will start to buy government
bonds early next year, embarking on a policy known as quantitative
easing that has been used extensively by central banks in the U.S.,
U.K. and Japan. The ECB has largely resisted, focusing its
unconventional stimulus efforts instead on loans to banks and
purchases of private debt securities.
ECB President Mario Draghi Nov. 21 put financial markets on
alert that the ECB was losing patience with ultralow levels of
inflation and was ready to do more.
His deputy, Vitor Constancio, on Wednesday sent the strongest
signal to date that the ECB is prepared to buy government bonds
early next year if it decides that more aggressive stimulus
measures are needed
Germany's statistics agency on Thursday said consumer prices
rose 0.5% in the 12 months to November, the smallest increase since
February 2010. In Spain, prices fell 0.5% in November from the same
month a year ago, after a 0.2% annual drop in October, while
Belgian prices also declined, although only slightly.
A measure for the eurozone as a whole will be released on
Friday. The consensus forecast of 22 economists surveyed by The
Wall Street Journal last week was for a decline in the currency
area's inflation rate to 0.3% from 0.4% in October. That would make
it the 14th straight month in which inflation was less than half
the rate targeted by the ECB, of just below 2%.
With energy prices falling, economists said further declines in
the inflation rate are likely in coming months.
"Inflation may head for a new cyclical low close to zero in
December," said economist at Commerzbank.
Expectations that the ECB will soon become a buyer created heavy
demand for eurozone government bonds Thursday, pushing yields down
to their lowest levels since the euro was launched in 1999.
In addition to falling inflation, figures released by the ECB
itself indicated the stimulus measures launched since June have yet
to boost the flow of credit through the economy.
Compared with the same month a year earlier, bank lending to the
private sector continued to fall in October, although at a slightly
slower pace than in the previous month. Compared with September,
lending to households rose by EUR4 billion ($4.99 billion), while
loans to businesses fell by EUR3 billion.
"There is little evidence in this data that the stimulative
measures announced by the ECB in June and September are having much
positive impact," said Howard Archer, an economist at IHS Global
Insight.
Economists say the long decline in lending may be due as much to
weak business confidence as a reluctance on the part of banks to
provide credit.
A survey released by the European Commission Thursday indicated
that business confidence is once again on the rise. Concerns about
tensions between the EU and Russia, as well as the weakening
economic outlook, saw confidence dip over the summer, but the
survey found manufacturers and retailers became more upbeat for the
second straight month in November.
While bank lending is weak across the currency area, the German
labor market remains strong. The country's labor office reported
Thursday that total jobless declined by 14,000 in adjusted terms in
November, following a decline of 23,000 in October. The November
total was far better than economists' expectations of a decline of
1,000.
"Despite restrained economic growth, the labor market has
developed favorably," said the head of the labor agency,
Frank-Jürgen Weise.
Another survey released Thursday found German consumers are
heading into the Christmas season with increasing confidence. The
GfK indicator for December increased to 8.7 in after November's
8.5. GfK uses data from the current month to derive a figure for
the coming month.
The survey indicates that while policy makers and economists
fret over the threat posed by low inflation to the eurozone's
medium-term growth prospects, it may be helping to support consumer
spending right now.
"As a result of the extremely low rate of inflation, salary and
pension increases are making a real difference to Germans'
financial situation," GfK said.
David Román and Emese Bartha contributed to this article.
Write to Paul Hannon at paul.hannon@wsj.com and Todd Buell at
todd.buell@wsj.com