Deflation knocks at ECB door

FRANKFURT, Aug 31 (AFP): Financial markets are looking to the European Central Bank to open the cash floodgates next week after consumer price data showed the 18-country eurozone is flirting with deflation, analysts said.
Speculation is rising that the ECB's decision-making governing council could signal plans for what is known as "quantitative easing" or "QE" at its regular monthly meeting on Thursday.
This is a radical policy -- already used by other central banks such as the US Federal Reserve -- of buying securities on a big scale to inject cash into the economy.
The ECB has already cut its key interest rates to record lows and made huge volumes of ultra-cheap cash available to banks in a bid to kick-start lending in the singe currency area. But the pressure has increased on the ECB to take still more measures after eurozone inflation slowed to a paltry 0.3 per cent in August from 0.4 per cent the previous month.
That is worryingly below the central bank's target of just under 2.0 per cent and brings the single currency area perilously close to deflation, a climate of falling prices which can cause businesses and consumers to delay purchases, further reducing demand and prices and pushing up unemployment.