Eurozone blow as prices take a tumble
PRICES IN the eurozone fell in February, falling short of already depressed expectations and virtually ensuring another round of policy easing from the European Central Bank on March 10.
Combined with weak sentiment and output data, the dismal inflation figures suggest that the bloc’s tepid growth is slowing, adding to calls for fiscal and monetary policy action to prop up an economy that has yet to grow back to its pre- crisis size.
“Deflation would be a disaster for the euro area as the burden of high debt would increase,” Nordea economist Holger Sandte said. “Therefore, the ECB will continue easing monetary policy significantly.
“But no matter what the ECB decides to do on March 10, inflation is likely to hover around zero during the next few months before it picks up.”
Headline inflation, the key indicator watched by the ECB, fell to - 0.2 per cent from 0.3 per cent a month earlier, far from the bank’s target of close to 2 per cent and below already muted expectations for unchanged prices.
More alarmingly for the ECB, core inflation excluding volatile food and energy prices, dipped to 0.8 per cent from 1 per cent, suggesting low oil prices are feeding into the price of other goods and services, creating a so- called second round effect that could entrench low inflation and lead to deflation.