Euro-zone inflation dropped as expected to a fresh five-year low in August, data showed on Friday, something likely to concern the European Central Bank but not force it into immediate policy intervention.
Consumer prices in the 18 countries using the euro rose by just 0.3% year-on-year in August, the smallest increase since October 2009, the European Union's statistics office Eurostat reported.
Inflation, which dropped unexpectedly to 0.4% in July, has been locked in what ECB President Mario Draghi called a 'danger zone' of below 1% since October last year.
Vanishing inflation poses problems for the ECB as it tries to respond to the bloc's stalled recovery, which is facing additional struggles because of economic sanctions imposed against Russia in July over its involvement in the deepening conflict in Ukraine.
Any immediate action coming at the ECB's Sept. 4 policy meeting is not considered likely, though also not impossible, according to ECB sources talking to Reuters earlier this week. The bank is likely to wait.
Investors and markets, however, will seek more insight from Draghi about what can and will be done by the ECB and European governments to push through reforms and revive growth.
A combination of jobless recovery, sluggish growth and low inflation is a major worry for the euro-zone and the ECB has urged governments to speed up implementation of structural reforms, vital for Europe's economy to heal.
Some countries are opposed to too much loose monetary policy, however, and there are a number of reform laggards in the currency bloc.
The euro rose to the day's high of $1.3195 U.S. as investors trimmed bets against the currency after the data and German Bund futures fell.
The drop in August inflation was led by a 2% decline in the highly volatile prices of energy and a prices of food, alcohol and tobacco falling by 0.3% for a second month in a row in August.
In June, the ECB cut interest rates to record lows, started charging banks to keep their funds overnight and launched a new long-term loan programme, which will start in September and aims to give banks an incentive to lend more to the real economy.
Since then, the ECB has been in a wait-and-see mode, wanting to see the impact of its new liquidity injection first before considering further stimulus measures, though Draghi has stressed repeatedly the ECB stands ready to do more if needed.
