Euro-Area March Inflation Slows for Third Month on Energy Costs

The euro-area inflation rate fell for a third month in March as energy-cost growth slowed and the currency bloc’s recession and record unemployment eroded consumer spending.

Annual price growth in the 17-nation economy was 1.7 percent last month, down from 1.8 percent in February, the European Union’s statistics office in Luxembourg said today. Energy prices rose 1.7 percent in March after a 3.9 percent gain in the prior month. The overall inflation rate moved below the European Central Bank’s 2 percent ceiling in February for the first time in more than two years.

ECB President Mario Draghi said on April 4 that “inflation expectations are firmly anchored and in line with price stability over the medium to long term.” The recent decline in inflation rates “mainly reflects the energy component of the price index,” he said. The ECB that day kept its benchmark interest rate at a record low of 0.75 percent.

The euro-area economy has contracted for five straight quarters and is forecast to shrink 0.1 percent in the first three months of 2013 before returning to growth, the median of 25 economists’ estimates in a Bloomberg News survey shows. The European Commission sees the economy shrinking 0.3 percent this year.

Austerity measures across the euro area, coupled with record unemployment of 12 percent, have driven down demand for imports. Consumer confidence increased less than economists forecast in March amid signs the economy is struggling to pull out of the recession.

The annual core inflation rate, excluding volatile costs such as energy, alcohol and tobacco, rose to 1.5 percent in March from 1.3 percent a month earlier, today’s report showed. The cost of services rose 1.8 percent after a 1.5 percent gain in February.

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