Euro zone inflation falls to 0.5% in March
Euro zone inflation fell to 0.5% in March, official data showed today, the lowest rate since October 2009 at the height of the financial crisis, and amid concerns about the dangers of deflation.
Inflation in the currency bloc has trended steadily lower in recent months, coming in well below the European Central Bank target rate of just under 2%.
The latest figure is sure to stoke concerns of a growing risk of deflation, or falling prices in absolute terms.
By component, food, alcohol and tobacco prices rose 1.1% in March, after rising 1.5% in February, but energy costs were down 2.1%, after a fall of 2.3% in February, the Eurostat statistics agency said.
Economists said the latest fall was partly due to temporary factors, but that nonetheless, the weakness of inflation suggests that the ECB may have little option but to take further policy action.
Deflation is a worry because if consumers believe prices will fall they put off purchases, which forces companies to delay investment, hitting salaries and jobs, and so setting up a vicious downward circle.
The European Central Bank meets on Thursday for its monthly policy meeting and had not been expected to announce any new measures, given recent data suggesting the region’s economy is in a tentative recovery.
The ECB has held euro zone borrowing costs at their current all-time lows since November.
Meanwhile, the IMF said today that the European Central Bank has more room to cut interest rates as it warned that the euro zone faced the biggest pressure from slowing inflation.
“We are not so much worried about deflation by itself, but we are very worried about what we call ‘low-flation’,” Reza Moghadam, Director of the IMF’s European Department, said at London’s City Week conference.