Eurozone inflation turned negative again in September as oil prices tumbled, raising pressure on the European Central Bank to beef up its asset purchases to kick start anaemic price growth.
Prices fell by 0.1 percent on an annual basis, the first time since March that inflation has dipped below zero, missing analysts' expectations for a zero reading after August's 0.1 percent increase.
The negative reading is a headache for the ECB, which is buying 60 billion euros ($67.37 billion) of assets a month to boost prices. It has already said it may have to increase or extend the quantitative easing (QE) scheme because inflation may fall short of its target of almost 2 percent even in 2017.
Long term inflation expectations have dropped to their lowest since February, before the ECB's asset purchases started, as China's economic slowdown, the commodity rout and paltry eurozone lending growth reinforce pessimistic predictions.
Even Finnish central bank chief Erkki Liikanen, normally considered an inflation hawk, has warned that eurozone growth is at risk from the slowdown in emerging markets and that inflation could fall short of already modest expectations.
"We believe the ECB will extend its QE programme beyond September 2016, most likely until mid-2018, and that it could reach 2.4 trillion euros - more than twice the original 1.1 trillion euro commitment," credit ratings agency Standard & Poor's said on Wednesday.
ECB President Mario Draghi, though striking a balanced tone, stressed last week that the ECB was ready to act and had much flexibility regarding the scale, composition and duration of its asset purchases.
Although many of the factors dragging on inflation are outside the bank's control, such as the plunge in oil prices, some economists argue that any easing of the ECB's commitment to meeting its target damages the bank's credibility.
Inflation has run below target for two years now and may not head back towards 2 percent for another two years.
"Increasing the pace of monthly purchases will have greater impact than extending the duration of the current programme," Deutsche Bank said in a note to clients.
"The hurdle to increase the pace of purchases is likely to be high, leaving a programme extension as the path of least resistance."