Euro-area consumer prices fall most in year

Business Monday 29/February/2016 15:44 PM
By: Times News Service
Euro-area consumer prices fall most in year

Frankfurt: Euro-area consumer prices plunged the most in a year in February and a core measure also dropped, adding to deflation concerns that are piling pressure on the European Central Bank (ECB) to expand stimulus in March.
The inflation rate in the 19-nation bloc declined to minus 0.2 from a positive reading of 0.3 per cent in January, according to data published on Monday. Core inflation, which strips out volatile elements such as food and energy, was at 0.7 per cent, down from one per cent in the prior month.
The deteriorating inflation backdrop comes just over a week before ECB policy makers led by President Mario Draghi gather in Frankfurt for a meeting at which they’ve said they’ll review if their current stimulus is enough. Price growth has fallen short of the ECB’s goal of just below two per cent for more than two years amid a drop in oil prices, pushing the central bank to take more and more aggressive action in response.
"If we look at Europe at the moment, the danger we face is without any doubt deflation not inflation," ECB Governing Council member Francois Villeroy de Galhau said in an interview on Sunday. "If the low energy prices have sustainable long-term effects, we have to act. That seems to be the case, but we will see in March."
Both the headline and the core measures of inflation were weaker than economists had forecast. The main rate was projected to come in at zero, while the core rate was expected to slip to 0.9 per cent.
Disappointing data
The euro-wide number follows disappointing data from Germany, France and Spain. In Germany, the European Union-harmonised inflation rate dropped to minus 0.2 per cent from 0.4 per cent. The rate in France fell to minus 0.1 per cent, while Spanish prices slid 0.9 per cent. All readings were worse than economists had forecast.
To kickstart a revival in inflation, the ECB has already cut its deposit rate to minus 0.3 per cent and is pumping 60 billion euros ($66 billion) a month into the economy via asset purchases. Central bank officials have said they are ready to expand stimulus if needed to counter the risk of low inflation becoming entrenched in the region’s economy.
This puts the spotlight on appearances from policy makers before the ECB enters its week-long quiet period ahead of the March 10 meeting. Executive Board members Sabine Lautenschlaeger and Benoit Coeure are both slated this week; so are Governing Council members Klaas Knot and Villeroy de Galhau.
"With inflation expectations low and falling, the threat of a more persistent bout of deflation remains very real," Jessica Hinds, an economist at Capital Economics in London wrote in a client note before the data. "As such, the ECB cannot afford to disappoint expectations of more stimulus in March."