Eurozone consumer prices fell for the third straight month in
February, although at a slower pace, while the jobless rate fell to
its lowest level since early 2012.
The European Union's statistics agency Monday said prices were
0.3% lower than in February 2014, having fallen 0.6% in January.
The December decline in prices was the first since late 2009.
Prices fell more slowly than economists had expected, with the
consensus expectation of 23 forecasters surveyed last week having
been for a drop of 0.4%.
Eurostat also said the unemployment rate across the 19 countries
that use the euro fell to 11.2% in January from 11.3% in December,
its lowest since April 2012. During the month, the number of people
without work fell by 140,000.
That combination of easing price declines and joblessness will
give some encouragement to European Central bank policy makers as
they prepare to meet in Cyprus Wednesday and Thursday, and launch
their new stimulus program.
The ECB's governing council responded to the decline in prices
that began in the final month of 2014 by announcing it will buy
more than one trillion euros of mostly government bonds by
September 2016.
ECB policy makers fear that households and businesses will grow
accustomed to falling prices, and postpone some spending decisions
in anticipation of a better deal later in the year, in turn leading
to falls in output and further drops in prices.
The longer that prices continue to fall, the more likely that
inflation expectations will be fundamentally altered. ECB policy
makers would therefore welcome a quick return to rising prices.
The central bank's economists will publish new inflation
forecasts on March 5, but a number of policy makers have said they
expect the decline in prices to continue through much of this
year.
But even an earlier-than-expected return to rising prices would
be unlikely to prompt policy makers to reconsider the size and
duration of their program of quantitative easing, since inflation
would still remain far below the ECB's target of just under 2%,
with only modest economic growth to drive it higher.
The decline in prices was once again driven by lower energy
costs, although the drop in energy prices eased from January. While
prices for manufactured goods were lower on the year, prices for
services rose at a faster pace.
The core rate of inflation--which excludes items such as food
and energy--was unchanged at 0.6%, a very low level that will
concern ECB policy makers.
Aside from longer-term deflation fears, the decline in oil
prices appears to have helped spur activity in the eurozone,
combining with a weaker euro and ECB action to stimulate
growth.
Surveys and economic date released over recent weeks have
indicated the eurozone economy may be picking up, albeit from a
very weak starting point.
A survey of manufacturers released Monday showed activity rose
at an unchanged pace in February, with Italy returning to growth as
France slipped deeper into contraction. While eurozone
manufacturers hired additional workers during the month, they also
cut their prices again, a sign that the ECB faces a long struggle
to raise the inflation rate to its target.
Write to Paul Hannon at paul.hannon@wsj.com
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