Eurozone price growth hovers at four year low

INFLATION in the Eurozone stayed at a four year low during February, despite early indications that price growth was slightly firmer during the month.

The currency union’s harmonized index of consumer prices has risen by 0.7 per cent between February 2013 and last month, significantly below the European Central Bank’s target of close to two per cent.

Some analysts have suggested that protracted low inflation in the region makes rebalancing more difficult and increases the risk of widespread deflation. Several euro area countries are recording deflation, with prices falling. Greece, Cyprus and Portugal all posted negative rates of inflation: minus 0.9 per cent, minus 1.3 per cent and minus 0.1 per cent respectively.

“The slowing of prices in stronger economies gives the ECB more latitude to act, and as such it might be prudent for the ECB to strengthen its policy stance in the coming months as a precaution,” said Tom Rogers, senior economic adviser to EY. Spain, Italy, Ireland and the Netherlands also posted rates of less than 0.5 per cent.

German and French inflation rates are marginally higher, at one per cent and 1.1 per cent respectively.
Finland and Malta have the highest rates of inflation in the currency bloc with rates of 1.6 per cent each, still below the target.

Eurozone inflation has now been below two per cent for over a year, and below one per cent for several months. Currently, the ECB does not expect the rate to return to target even by the end of their forecast horizon at the end of 2016.

“Very low inflation can be very problematic for highly indebted countries and can be an obstacle to the ongoing deleveraging for the private sector,” added Joshua McCallum of UBS Global Asset Management.