Euro-Area Inflation Rate Turns Negative as

ECB Debates Stimulus

The euro area’s inflation rate unexpectedly turned negative in September for the first time in six
months, adding pressure on the European Central Bank to bolster stimulus.

Consumer prices in the 19-nation currency bloc fell 0.1 percent from a year earlier, according to
a preliminary report published by the European Union’s statistics office in Luxembourg on
Wednesday. Economists predicted an inflation rate of zero, according to the median estimate of
38 analysts in a Bloomberg survey. Unemployment in the region remained unchanged in August
at 11 percent, Eurostat said in a separate release.

While declining prices are largely a consequence of cheaper energy, policy makers including
ECB President Mario Draghi have signaled that they could expand quantitative easing if needed
to avert deflation. Two thirds of economists in a Bloomberg survey this month said the ECB will
add to its 1.1 trillion-euro ($1.2 trillion) asset-purchase plan, with a majority of those who gave a
timeframe predicting the move will come before the end of the year.

Data “was broadly driven by the energy component,” said Giada Giani, an economist at
Citigroup Inc. in London. “There are very little inflationary pressures even aside from the oil-
price shock. It should be bottom for the year.”

Brent oil has plunged by a quarter since the end of June amid speculation a global glut will be
prolonged. Oil is poised for its lowest quarterly average price since the start of 2009.

Energy prices fell 8.9 percent in September from the previous year, Eurostat said. Core inflation,
which strips out volatile elements such as food and energy, remained unchanged at 0.9 percent.

The euro weakened for the first time in three days against the dollar after the report. It fell 0.3
percent to $1.122 at 10:43 a.m. London time.

German Unemployment Unexpectedly Rises

in Sign of Economic Risks
German unemployment unexpectedly rose in September in a sign that Europe’s largest economy
is not immune to risks from slowing growth in emerging markets.

Joblessness increased a seasonally adjusted 2,000 to 2.795 million, the Federal Labor Agency in
Nuremberg said on Wednesday. Economists had predicted a drop of 5,000. The unemployment
rate remained unchanged at 6.4 percent, the lowest level since German reunification.
China shook financial markets last month when it devalued its currency to shore up weaker
growth. The slowdown there and in other emerging nations is a challenge for Germany’s trade-
focused business model that helped propel the rate of economic expansion to the fastest since
2011.

The number of people without work rose by about 4,000 in western Germany and fell by about
2,000 in the eastern part of the country, the data show.

The jobless rate in the 19-nation euro area remained unchanged at 10.9 percent in August,
according to a separate survey. That report is due at 11 a.m. from the European Union’s statistics
office in Luxembourg.

Traders Flee Emerging Markets at Fastest

Pace Since 2008
Investors have pulled $40 billion out of developing economies in the third quarter, fleeing
emerging markets at the fastest pace since the height of the global financial crisis.

The quarterly outflow was the first since 2009 and the biggest since the final three months of
2008, when traders sold $105 billion of assets, according to the Institute of International Finance.
The retreat came as data signaled faltering Chinese economic growth, commodity prices slumped
and the Federal Reserve moved closer to an increase in the near-zero U.S. interest rates that have
supported demand for riskier assets in developing nations.

About $19 billion of the selloff was equities, with the remaining $21 billion in debt, the IIF said
in a report Tuesday. There were outflows in all three months this quarter.

The MSCI Emerging Markets stocks benchmark has declined 20 percent in the past three
months, on track for the biggest retreat in four years. Local-currency developing-nation bonds
have lost 6.6 percent in dollar terms in the third quarter, according to Bank of America Corp.
indexes, the biggest retreat on a quarterly basis since 2011. Currencies from Brazil to South
Africa have tumbled, sending a gauge of 20 foreign-exchange rates to a record low.

Severe Reaction

“The reaction we’re seeing is quite severe, but a lot of the damage has already probably taken
place,” Brendan Ahern, managing director of Krane Fund Advisors LLC in New York, said by
phone. “It’s the trifecta of slowing investment growth, declining commodity prices and the
strong dollar.”

Corporate debt of non-financial firms in emerging markets rose to more than $18 trillion in 2014
from $4 trillion in 2004, the International Monetary Fund said in a study also released Tuesday.