Inflation stuck near zero reinforces Draghi's stimulus push

Euro-area inflation was unexpectedly unchanged in November, giving fuel to Mario Draghi's campaign to step up stimulus.

Inflation in the 19-nation region remained at 0.1 percent, the European Union's statistics office in Luxembourg said on Wednesday. Economists surveyed by Bloomberg predicted the rate would rise to 0.2 percent.

All eyes now turn to the European Central Bank president and his response to the data that crown a series of reports from manufacturing to unemployment highlighting the slowly improving, though delicate, state of the economy. With a slowdown in emerging markets weighing on the recovery and inflation far short of the ECB's mandate, Draghi has all but promised to cut interest rates and expand asset purchases at a Dec. 3 meeting.

"ECB inflation hopes prove to be an illusion," said Christoph Weil, an economist at Commerzbank in Frankfurt. "We expect the ECB to revise down its medium-term projections tomorrow and further loosen monetary policy."

The euro dropped more than a quarter of a cent after the report and traded at $1.0595 at 12:31 p.m. Frankfurt time. ABN Amro Bank, Barclays and Bank of America's Merrill Lynch unit forecast the euro will weaken below parity next year for the first time since December 2002.

While policymakers have stressed repeatedly that inflation is being damped by a drop in costs for energy and other commodities that will fall out of the equation at the end of the year, they now seem to be concerned that low price growth will become entrenched. Inflation hasn't been in line with the ECB's goal of just under 2 percent since early 2013, and forecasts in September signaled it wouldn't return there until late 2017.

Core inflation-- which strips out volatile elements such as food and energy prices -- unexpectedly slipped to 0.9 percent last month, according to Eurostat's report. Economists predicted the rate would remain unchanged at 1.1 percent.

Draghi set the scene for more stimulus in October and reinforced his pledge in a Nov. 20 speech, when he declared that officials "will do what we must to raise inflation as quickly as possible," using all available instruments within the mandate.

Among his options are a deposit-rate cut from its current low of minus 0.2 percent, changes to the size or duration of the existing 1.1 trillion-euro ($1.2 trillion) asset-purchase program, or new measures.

In a Bloomberg survey published this week, all 53 participating economists predicted the ECB will step up stimulus, with almost 80 percent of them seeing an extension of QE and more than 65 percent anticipating Draghi will raise purchases from 60 billion euros a month. A deposit rate cut was forecast by more than three-quarters of respondents.

One guide for policymakers will be updated economic projections. In September, the ECB said growth would accelerate to 1.8 percent in 2017 from 1.4 percent this year, with the average inflation rate climbing to 1.7 percent from 0.1 percent.

In a report to the Austrian parliament published on Tuesday, ECB Governing Council member Ewald Nowotny said recent forecasts "display risks to reaching the target of inflation." The new outlook in December "will give us more insight," he said.

Data on Tuesday showed the euro-area recovery is improving, albeit slowly. Manufacturing grew at the strongest pace in 19 months in November and unemployment in the region unexpectedly declined in October.

"The region's steady labor-market recovery has continued," said Jennifer McKeown, an economist at Capital Economics in London. "But the bigger picture is that unemployment remains too high to boost wage growth and inflation."

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Bloomberg contributors: Alessandro Speciale, Andre Tartar, Jillian Ward and Kristian Siedenburg.