By Jan Strupczewski
BRUSSELS (Reuters) - Euro zone inflation all but evaporated in August, revised data showed on Wednesday, raising market expectations that the European Central Bank could step up its government bond buying programme.
The European Union's statistics office Eurostat said consumer prices in the 19 countries sharing the euro were flat on the month and up just 0.1 percent from the same month last year, slowing down from a 0.2 percent annual rise logged in July.
In its first estimate two weeks ago, Eurostat estimated the year-on-year increase in August at 0.2 percent.
"The downward revision in euro zone consumer price inflation to 0.1 percent in August will further fuel expectations that the ECB will step up its Quantitative Easing (QE)," said Howard Archer, economist at IHS Global Insight.
The ECB wants to keep consumer inflation below but close to 2 percent over the medium term and started a QE programme of buying 60 billion euros worth of government bonds a month earlier this year to inject more cash into the economy and maker prices rise faster.
"(ECB President) Mario Draghi opened the door wide at the September policy meeting to the ECB expanding its QE, should euro zone consumer price inflation dip anew or even fail to pick up significantly over the coming months," Archer said.
"It currently looks very possible that the ECB will feel more QE is warranted, and senior ECB policymakers Vitor Constancio and Ewald Nowotny have both indicated this week that the ECB could step up the pace of QE and/or increase the programme's overall size and duration," he said.
The lower August annual inflation reading is mainly due to a deeper than previously estimated fall in energy prices over the year - 7.2 percent rather than 7.1 percent - and slower growth in prices for non-energy industrial goods - only 0.4 percent rather than the previously reported 0.6 percent.
Core inflation, a measure that excludes volatile energy and unprocessed food prices, stood at 0.3 percent month-on-month and 0.9 percent year-on-year in August, the same as previously estimated and unchanged from July.
Eurostat said that among the items with the biggest impact on the overall year-on-year reading, cheaper transport fuel subtracted 0.55 point, while less expensive heating oil took away another 0.25 point.
More expensive restaurant and cafe prices added 0.1 point and higher priced vegetables and tobacco added 0.09 and 0.08 point each.