The News – Capital Media
The News – Capital Media
  • Eurozone inflation falls again despite decade-high growth

  • Inflation across the 19-country eurozone fell in February for a third month running even though economic growth is at a decade high. That's likely to mean the European Central Bank treads carefully in coming months as it mulls how to end crisis-era stimulus measures. The EU statistics agency said Wednesday that annual consumer price inflation eased to 1.2 percent in the year to February from 1.3 percent the month before.

, A woman walks in Athens' Plaka district, Monday, Feb. 26, 2018. Greece's government is opening Monday a last round of reforms talks with bailout creditors, just five months before the country's massive rescue loan program ends.(AP Photo/Petros Giannakouris)

28 of February 2018 13:16:52

LONDON (AP) — Inflation in the 19-country eurozone fell in February for a third month running even though economic growth is at a decade high, a trend that's likely to make the European Central Bank tread carefully in the months ahead as it mulls how to end its crisis-era measures.

The EU statistics agency, Eurostat, said Wednesday that annual consumer price inflation eased to 1.2 percent in the year to February from 1.3 percent the month before. The fall, which takes inflation to its lowest level since December 2016, was anticipated by investors and was largely due to energy prices rising at a slower tick on an annual basis.

But even when stripping out volatile items such as energy and food, inflation held steady at a still-low 1 percent.

Both measures are below the European Central Bank's goal of achieving inflation of just below 2 percent and will likely reinforce expectations that the bank won't announce any dramatic changes to its cheap and easy monetary policy at its meeting next week.

The recent moderation in inflation is likely to disappoint many at the bank looking to bring an end to the crisis-era stimulus measures put in place over the past few years to help the eurozone economy back to health. Super-low interest rates — the main one has been slashed to zero — and a big bond-buying program have helped growth. In fact, the eurozone is one of the standouts around the world, expanding by 2.5 percent last year, its best performance since 2007.

But that growth boon is not translating into a sustained rise in inflation. Central banks target a level of inflation that they consider to be healthy for an economy and that they think encourages consumers to spend and businesses to invest.

ECB President Mario Draghi has voiced confidence that inflation will return to target as growth eats up slack in the economy that has built up during the last few years of crisis and recession. Despite falling consistently over the past couple of years, unemployment across the eurozone stands at 8.7 percent, around double the rate in the U.S.

In many eurozone countries, notably those at the forefront of the debt crisis like Greece and Spain, unemployment remains far higher — in Greece it's still over 20 percent — and that continues to cap inflation by depressing wages.

"Unemployment there will have to retreat much further before these countries experience stronger wage growth," Christoph Weil, senior economist at Commerzbank.

Draghi has also argued that the recent era of low interest rates and too-low inflation may have been "internalized" by wage negotiators, many of whom may also have been focused more on keeping jobs than on securing higher pay.

However, that may be changing, certainly in Germany where unemployment is at very low levels. Low unemployment gives wage negotiators a chance to press for higher pay deals as many have done so far this year, including IG Metall, Germany's biggest industrial union. Still, inflation in Germany remains subdued — figures Tuesday pointed to an annual rate of only 1.4 percent.

There are a host of reasons why inflation is failing to pick up. The recent appreciation in the value of the euro, which has risen around a fifth against the dollar over the past year to $1.22, has lowered the cost of imports like energy. The impact of globalization, an aging population and the digitization or automation of work and services may also be keeping inflation lower.

"Expectations of a quick return of inflation seem exaggerated, making a cautious ECB next week very likely," said Bert Colijn, senior eurozone economist at ING.


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