Eurozone Inflation Back In Negative Zone As ECB Readies Stimulus

Eurozone consumer prices declined for the first time in five months in February and at the fastest pace in a year, adding to the deflation worries of the European Central Bank, which is widely expected to announce another round of stimulus next week.

The flash harmonized index of consumer prices fell 0.2 percent year-on-year following a 0.3 percent rise in January, Eurostat said Monday. That defied economists expectations for a 0.1 percent gain.

The latest decline was the first since September and the biggest since February last year, when prices fell 0.3 percent.

The core HICP that excludes fresh food and energy prices rose 0.8 percent annually after a 1 percent climb in the previous month. Economists had forecast a 0.9 percent increase. Core inflation was the weakest since September.

“The weakening of core inflation shows the real and present danger that cheap oil will cause low inflation to become ingrained in Eurozone price and wage dynamics,” ING Bank economist Teunis Brosens said.

“Today’s weak core inflation gives doves the upper hand at next week’s ECB-meeting and therefore pretty much seals the deal on additional monetary easing.”

The increase in services costs accelerated to 1 percent from 1.2 percent. Food, alcohol & tobacco inflation slowed to 0.7 percent from 1 percent.

Energy prices tumbled 8 percent, which was faster than the 5.4 percent decline in the previous month. Non-energy prices rose 0.3 percent after a 0.7 percent climb.

Eurostat is set to release the detail data for February inflation on March 17.

Other economic data have also been less upbeat in the run up to the ECB policy session next week. Economic sentiment is at the lowest in eight months amid slowing private sector growth.

In February, the OECD slashed the growth outlook for the euro area to 1.4 percent for this year and 1.7 percent next year.

The ECB’s rate-setting body, the Governing Council, is scheduled to hold its next policy session on March 10.

ECB President Mario Draghi has said that the bank will not hesitate to act in March if downside risks to price stability prevail.

The ECB Chief stressed that policymakers will examine the strength of the pass-through of low imported inflation and also analyse the state of transmission of monetary impulses by the financial system, especially banks, in the backdrop of the recent financial turmoil.

The latest set of ECB Staff economic projections will also be unveiled in March. The report is likely to reveal further downgrade to euro area inflation projections.

The material has been provided by InstaForex Company – www.instaforex.com