Eurozone inflation falls to add to European Central Bank quantitative easing quandary
The pace of price rises in the Eurozone fell in April to add to the reasons for caution for the European Central Bank (ECB) over withdrawing monetary policy stimulus in the autumn.
Consumer price inflation fell to an annual rate of 1.2 per cent, down from 1.3 per cent, in spite of a marked pick-up in energy costs, according to early estimates from the European Commission’s statistics office.
Price rises in the services sector slowed significantly from 1.5 per cent to only one per cent annually.
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Core inflation, which strips out volatile energy, food, and alcohol costs, fell to only 0.7 per cent, the lowest since early 2017. The ECB has previously watched the core rate closely for signs of increasing inflationary pressure.
The inflation data come after first-quarter growth data showed a deceleration from three consecutive quarters of 0.7 per cent growth to a pace of 0.4 per cent, indicating the 2017 boom momentum may be slowing.
The central bank is currently looking to exit from its programme of €30bn monthly purchases, which are currently scheduled to last until the end of September 2018. Economists are divided as to whether the policymakers will continue purchases at a tapered pace after the deadline.
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Florian Hense, an economist at Berenberg bank, warned that the earlier timing of Easter is likely adding volatility to the data, while high oil prices will feed through to higher headline inflation in the coming months. He said: “The ECB will look through the volatility in the current inflation data.
“Beyond a temporary oil effect this year, the medium-term outlook remains benign. Underlying inflation looks set to firm very gradually, allowing the ECB to stick to its schedule of reducing its monetary stimulus cautiously.”
Read more: Eurozone inflation dips back down to give ECB further cause to pause