Euro-area price slump eases as European Central Bank set to commence QE
EURO-AREA consumer prices fell less than economists forecast last month, offering some relief to the European Central Bank as it prepares to put its unprecedented bond-buying programme into action.
The annual rate of inflation in the 19-nation bloc stood at minus 0.3 per cent in February, according to data published by the European Union’s statistics office in Luxembourg on Monday. Economists in a Bloomberg survey predicted a price decline of 0.4 per cent after a 0.6 per cent slump the previous month. Unemployment fell to 11.2 per cent in January, the lowest since April 2012, according to revised Eurostat data.
The data come just three days before a Governing Council meeting that’ll produce details on the ECB’s 1.1 trillion- euro ( RM4.3 trillion) asset-purchase programme and an update on inflation and growth projections. While the latest data, along with an increase in oil from its recent low, may indicate the worst of the price slump is passing, the euro-region economy remains weak and burdened by high unemployment.
“The fact that core inflation remains low supports the ECB’s decision to engage in QE,” said Gizem Kara, an economist at BNP Paribas in London. “We expect inflation to hover around zero to slightly negative over the next couple of months, before it rebounds to positive territory by mid-year.”
Inflation stripped of volatile components such as energy, food, alcohol and tobacco held at a euro- era low of 0.6 per cent in February. Energy prices fell 7.9 per cent from a year earlier after a 9.3 per cent decline in January.
The euro extended its increase against the dollar after the report and was up 0.3 per cent at 12.31 pm. Frankfurt time at US$ 1.1234. The Stoxx Europe 600 Index was little changed when data were published before sliding 0.2 per cent to 391.35.
Separately Monday, Markit Economics said its euro-region manufacturing index was at 51 in February, unchanged from the previous month and just below a preliminary reading of 51.1. A print above 50 signals expansion. The report highlighted the divergences in the 19-nation economy, with manufacturing in Ireland expanding at the fastest pace in more than 15 years while French production plunged.
Economists in Bloomberg’s monthly poll forecast the euroarea economy will expand 0.3 per cent in each of the first two quarters of 2015, accelerating to 0.4 per cent in the following three-month periods through the third quarter of 2016. They predict consumer prices will fall 0.5 per cent this quarter and 0.1 per cent for the year. That compares with the ECB’s inflation goal of just below two per cent.
“Inflation is still very low and core inflation is on a downward trend,” said Fabio Fois, European economist at Barclays. “The rebound is driven by energy prices, which are stabilising, but it’s too early to speculate about the ECB or reach a conclusion.” — WP-Bloomberg