Inflation falls to 0.3 percent in countries that use euro; pressure is on central bank to act

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FRANKFURT, Germany — Inflation in the 18 countries that use the euro sank to 0.3 percent in August, a worrying sign of economic weakness that is putting pressure on the European Central Bank to take more drastic steps to keep a weak recovery from stalling completely.

Eurostat, the EU statistics agency, said Friday the figure is down from 0.4 per cent in July, as expected by market analysts. Core inflation, which excludes volatile food and energy, sent a modestly brighter signal as it rose to 0.9 percent from 0.8 percent.

The low inflation figure comes amid increasing worry about the health of the European economy, a major pillar of the global economy with some 17 percent of world annual output. The eurozone showed no growth in the second quarter as fears about the Ukrainian crisis weighed on consumers and investment decisions. Unemployment remained high at 11.5 percent in July, unchanged from the month before.

ECB President Mario Draghi has warned that inflation expectations are worsening and says the bank, the top monetary authority for the eurozone, will add more stimulus if needed.

Many analysts predict the ECB will launch large-scale purchases of financial assets to pump more money into the economy. The bank's governing council meets on Thursday, but many experts think it will hold off for several more months as it waits for earlier stimulus efforts to show effect. The bank has already taken steps to boost growth and prices, cutting in June its key interest rate to 0.15 percent and offering cheap loans to banks on condition they lend more to companies.

Consumers like low inflation because it makes their paychecks go further in stores. But it is a sign of overall weak demand. And it has been so low for so long that it has raised fears of deflation, a crippling downward price spiral that comes about when people hold off buying things because they think prices will fall further.

Europe's economy grew for four quarters but then the recovery came to a halt in the second quarter of this year as core economies France and Germany stalled. Most economists predict growth will resume in coming quarters but it is feared that uncertainty over the crises in Ukraine and the Middle East will keep the recovery too weak to reduce high unemployment.

Draghi has said that if needed the bank could make large-scale purchases of financial assets, known as quantitative easing, or QE. That step adds newly created money to the economy and in theory can lower longer term borrowing costs for companies and increase the rate of inflation.

By considering more stimulus, the ECB is leaning in the opposite direction from that of the U.S. Federal Reserve, which is expected to halt its asset purchases later this year as the U.S. economy grows more strongly.

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