Eu­ro­zone blow as prices take a tum­ble

Yorkshire Post - Business - - MARKET REPORT -

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.

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