Euro zone inflation sticks in 'danger zone', keeps ECB under pressure

BRUSSELS Wed Apr 16, 2014 9:18am EDT

A man makes his way past a replica of a one drachma coin outside the Athens Town Hall May 21, 2012. REUTERS/Yorgos Karahalis

A man makes his way past a replica of a one drachma coin outside the Athens Town Hall May 21, 2012.

Credit: Reuters/Yorgos Karahalis

BRUSSELS (Reuters) - A drop in March euro zone inflation to its lowest level since November 2009 was confirmed on Wednesday, keeping pressure on the European Central Bank to intervene if prices do not rebound.

The year-on-year inflation rate in the 18 countries sharing the euro was 0.5 percent in March, down from 0.7 percent in February, the European Union's statistics office Eurostat said.

It was the sixth straight month that inflation remained in what ECB President Mario Draghi called a "danger zone" of below 1 percent.

Core inflation, excluding energy, food, alcohol and tobacco dropped to 0.7 from 1.0 percent. Excluding unprocessed food and energy, inflation was 0.9 percent, more than the 0.8 percent economists had forecast but still less than February's reading of 1.1 percent.

Analysts believe inflation will pick up in April because travel prices typically rise over Easter, and Easter comes later this year. It came at the end of March in 2013.

"In April we expect a rebound in core inflation, 0.9 percent, as some of the Easter-related seasonal price increases are likely to come with a month's delay," said economist Gizem Kara at BNP Paribas.

In March, the biggest rise in prices was for tobacco, restaurants and bars as well as milk, cheese and eggs. Prices fell for heating oil, telecommunications and fuel.

Disparity across the euro zone was stark. Greece (-1.5 pct) and Cyprus (-0.9 pct) saw prices fall from last year. Inflation rates in Austria (+1.4 pct), Malta (+1.4 pct) and Germany (+0.9 pct) were nearer the ECB's target of close to but less than 2 percent.

Inflation has now been in the ECB's "danger zone" of less than 1 percent for six consecutive months, fuelling speculation that the ECB will need to take further action. However, economists say that inflation may have bottomed out in March.

"Apart from the later Easter effect likely to push up inflation in April, the year-on-year drop in energy prices may well have peaked and food prices could start to edge back up," said economist Howard Archer at IHS Global Insight.

ECB policy makers said the bank stood ready to deploy unconventional measures to ensure that inflation did not stay low for too long.

ECB's President Mario Draghi expressed concerns at the euro's strength on Saturday in Washington, trying to talk down the currency, which influences domestic prices.

The strength of the single currency against the dollar makes imports cheaper and pushes down the prices Europeans pay for goods and services.

While this can give households more purchasing power in the short run, the ECB wants to avoid a drop in inflation expectations.

(Reporting by Robert-Jan Bartunek and Martin Santa; Editing by Larry King)

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Comments (3)
Willvp wrote:
We sleep nicely, knowing that those funny guys “will do whatever it takes” to keep bla-bla-ing.

Apr 16, 2014 5:20am EDT  --  Report as abuse
Eleni85 wrote:
We are talking about tiny public servants, hired without transparency that get to rely to save this complex mess, based on their tiny knowledgebase. They are so easy manipulated by various interests that they are willingly supporting this obscene intervention in the interest rates, practically funding bankers with public, state money, but almost on a laissez faire basis. This is crazy….we experience historical errors by tiny people who were tooooo small go step up in this crisis with a real solution and punishment’s for what has happened in countries e.g like Greece where failure occurred.

Interest rates tricks and capital requirements are not the way to stop the crisis. The fact that ALL failed bankers are still OUT and have gained from loosing public money e.g in Greece the State gave even a present to ex CEO and BoD Chairman of Piraeus Bank, Sallas, after loosing ALL sockholders and state money varioustimes. Corporate Governance standards of course are immaterial and only propaganda will boost public confidence to investing?

Maybe know the ECB will also do the investing, since real supervision is out of the picture. That will help these tiny geniuses achive a new level of Corruption and Dictatoric intervention.

Apr 16, 2014 10:29am EDT  --  Report as abuse
This article is great because it makes me look for more information. So that I can actually understand why lowering inflation is a problem. I’m still not sure! I’ve always seen it as something good, for the same reasons stated in this article. So why is lowering inflation bad in this instance?

Apr 17, 2014 2:23pm EDT  --  Report as abuse
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