Frankfurt

The European Central Bank got a reminder that the improving economy doesn’t guarantee a return of inflation to its goal, as unemployment unexpectedly dropped but consumer-price growth missed estimates.

The jobless rate slid to 8.8 per cent in October, the lowest in almost nine years. Yet November inflation edged up to just 1.5 per cent, missing the 1.6 per cent prediction in Bloomberg survey, and underlying price pressures failed to pick up at all.

The latest price data outline the dilemma facing the ECB. Even with the region’s economy set for the fastest growth in a decade and the most broad-based expansion since 1997, a sustained price recovery remains some way off. While policymakers have acknowledged that this development warrants less additional monetary support, ECB President Mario Draghi has advocated a “patient and persistent” approach to exiting the central bank’s stimulus program.

“The solid and broad-based economic recovery in the euro area is continuing,” ECB Executive Board member Peter Praet said on Thursday in Brussels. “The breadth of the expansion is notable.”

Core inflation, which excludes volatile items such as food, energy and tobacco, remained at a tepid 0.9 per cent in November, falling short of the 1 per cent median estimate by economists.

The euro traded lower after the report, and was at $1.1829 at 11:44am in Frankfurt.

Despite inflation consistently undershooting expectations, policymakers have expressed confidence that economic growth and falling unemployment will eventually feed through to prices.

“All indications are that the recovery will continue for longer, and that would put pressure on wages and prices going forward,” Vitor Constancio said in an interview with Bloomberg Television on Wednesday. “It’s a gradual process, but we see it going in that direction.”

Governing Council members Jens Weidmann and Klaas Knot on Wednesday called for a more a decisive acknowledgement of the strengthening of the economy.

“Evidence is mounting the economic outlook will be at least as good as previously forecast, if not even better,” Bundesbank President Weidmann said. “This development should continue for a while.”

When the ECB’s Governing Council next meets on Dec. 14, it will be faced once again with a picture of solid economic growth and subdued prices pressures. Policymakers announced in October that they will halve its current monthly pace of bond buying starting January and running until at least September.

“Absent deflation risk, a full phasing-out of net asset purchases from September 2018 onward is warranted,” Knot said in London.

— Bloomberg