* Inflation at 1.8 percent in February, around ECB target
* Lower wage growth, recession add to calls for ECB rate cut
* EU leaders in Brussels try to balance austerity with
By Robin Emmott
BRUSSELS, March 15 Inflation pressures in the
euro zone are easing, data showed on Friday, giving governments
and central bankers a touch more leeway for stimulus as the
region's leaders seek to shift their focus to reviving economic
Modest wage growth and a cooling of food price pressures
drove annual euro zone inflation down to 1.8 percent in
February, its lowest level since mid-2010, the EU's statistics
office said on Friday.
The figure, which confirmed Eurostat's flash estimate from
March 1 and was as expected by economists polled by Reuters, is
around the European Central Bank's target of below but close to
Combined with only very modest wage increases in the fourth
quarter of 2012, the data highlights the weakness of the euro
zone economy and will fuel expectations in some quarters that
the ECB could cut interest rates this year.
"With inflation set to undershoot the ECB's objective, an
interest rate cut appears to be largely constrained by the
prospect of an economic recovery in the second half of this
year," Citigroup said in a research note on Friday.
But with commercial bank lending in the euro zone still
subdued despite base rates being at a record low of 0.75
percent, others are sceptical about the impact of another cut.
Three quarters of economists expect the ECB to leave rates
unchanged for the rest of the year, according to a Reuters poll
published on Wednesday.
Already in recession in 2012, the euro zone economy is
expected to shrink 0.3 percent this year as households and
businesses struggle with the fallout of the bloc's public debt
crisis and government spending cuts.
Thousands of protesters called on EU leaders, whose two-day
summit in Brussels is due to end on Friday, to put an end to the
austerity blamed for record unemployment in parts of Europe.
"Market pressure on European governments has been replaced
by people pressure as a result of austerity and reform fatigue,"
said Barclays economist Philippe Gudin.
GROWTH AND AUSTERITY
The ECB's role is important because EU leaders are trying to
find ways of reviving economic growth while budget discipline
remains part of their strategy to overcome the bloc's debt
"There are no easy answers," European Council President
Herman Van Rompuy, who chairs the summit, told a news conference
on Thursday night. "The good progress towards structurally
balanced budgets must continue," he said.
France and Italy did win support for a slightly more
growth-friendly interpretation of European Union budget rules at
the summit after French President Francois Hollande challenged
German-driven fiscal austerity.
One silver lining in the Mediterranean region is that only
very modest wage increases are helping to improve
competitiveness after a decade-long boom fuelled by easy credit
pushed the euro zone into a false sense of economic wellbeing.
Hourly labour costs in the euro zone rose 1.3 percent
overall in the last three months of 2012, compared to the same
period in 2011. Wages per hour grew by 1.4 percent.
Those rises were less than half the level of increases in
early 2009, at a time when Europeans were giving themselves
generous pay hikes, pushing up the cost of labour by 12 percent
between 2001 and 2011.
In Spain, hourly labour costs fell 3.4 percent, but Germany
recorded a 2.9 percent increase, which bodes well because
wealthier consumers in Europe's largest economy could buy more
of their neighbours' products.