Euro-Area February Inflation Slows, Keeps Pressure on ECB

A Customer Buys Vegetables at a Farmer's Market in Athens
Consumer prices rose an annual 0.7 percent, down from 0.8 percent in January, the European Union’s statistics office in Luxembourg said today. Photographer: Kostas Tsironis/Bloomberg

March 17 (Bloomberg) -- Euro-area inflation unexpectedly slowed in February, keeping pressure on the European Central Bank to defend the currency bloc against falling prices.

Consumer prices rose an annual 0.7 percent, down from 0.8 percent in January, the European Union’s statistics office in Luxembourg said today. That’s below Eurostat’s initial estimate of 0.8 percent on Feb. 28. The rate has been below 1 percent for five months.

Today’s report is “a clear reminder that low inflation may have become the new normal for the euro zone,” said Martin van Vliet, an economist at ING Bank in Amsterdam. The February revision “is unlikely to be enough to trigger further near-term monetary easing,'' he said. ‘‘This will also require a deterioration of activity and/or a further significant strengthening of the euro.’’

The ECB aims to keep inflation just below 2 percent and has blamed the strength of the euro for helping to keep prices subdued. The central bank expects its key interest rates ‘‘to remain at present or lower levels for an extended period of time,’’ President Mario Draghi said on March 6 after the Governing Council left the main refinancing rate at a record low of 0.25 percent.

‘‘This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy, the high degree of unutilized capacity and subdued money and credit creation,’’ Draghi said.

Core Rate

The euro extended losses against the dollar after today’s report and was trading at $1.3890 at 1:05 p.m. Brussels time, down 0.2 percent on the day. The Stoxx Europe 600 Index was up 0.6 percent at 324.26

Euro-area consumer prices increased 0.3 percent in February from the previous month, today’s report showed. The slowdown in the annual rate was driven by energy prices, which fell 2.3 percent in February from a year earlier. The cost of services grew 1.3 percent, up from 1.2 percent in January.

Annual core inflation, which excludes volatile items such as energy, alcohol and tobacco, accelerated to 1 percent in February from 0.8 percent.

The ECB forecasts inflation of 1 percent this year and 1.3 percent in 2015.

To contact the reporter on this story: Patrick Henry in Brussels at phenry8@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Andrew Atkinson, Zoe Schneeweiss