German annual inflation turned negative in September for the first time in eight months. As Sonia Legg reports, the weaker-than-expected reading could push the euro zone rate below zero, boosting the case for the European Central Bank to take more action.
For German beer lovers the Oktoberfest is an annual highlight. But it seems spirits are high elsewhere in the euro zone too. New data from the European Commission shows economic sentiment in September was at a four-year high. Even the business climate indicator was music to many ears - markets had expected that to fall, partly because of fears about China's slowdown. Michael Bell is from JP Morgan. (SOUNDBITE) (English) MICHAEL BELL, JP MORGAN ANALYST, SAYING: "From the numbers we have run we think that a one percent slowdown in China could have a 0.4 percent impact on European GDP so it will have a slowdown effect but we don't think it is enough to derail the recovery." The beer prices should be good too - German annual inflation turned negative in September for the first time in eight months, worse than the expected stagnation. That potentially means the euro zone figure - due on Wednesday - will be in negative territory too. Many now see further QE from the ECB as inevitable. (SOUNDBITE) (English) MICHAEL BELL, JP MORGAN ANALYST, SAYING: "Core inflation is actually doing ok at the moment, it's not exceptional but we are seeing reasonable growth in inflation. Headline inflation is quite weak and that's being caused by the weaknesss in the oil price predominantly." The ECB can at least take comfort from the periphery - positive data from Italy on Monday was followed a day later by more from Spain. Its retail sales rose 3.1 percent from a year earlier on the back of growing demand. But here too consumer prices are fuelling deflation fears. They fell 1.2 percent year on year in September - their fastest rate of decline in seven months.