Eurozone price pressures ease during March

  • Price pressures in the eurozone slipped back sharply in March, easing some of the pressure on European Central Bank president Mario Draghi to start tightening monetary policy for the single currency area.

    Eurostat, the European Commission’s statistics bureau, said on Friday that annual inflation had fallen to 1.5 per cent this month, down from 2 per cent in February.

  • The sharper-than-expected decline follows a spike in oil and food prices earlier this year.
  • Core inflation, which excludes the changes in oil and food prices, fell to 0.7 per cent — the lowest reading since April 2016.
  • However, that core figure is likely to rise in the coming months as one-off seasonal effects fall out of the index.
  • The re-emergence of price pressures — coupled with better news on the region’s economy — had led to calls from several heads of national central banks for Mr Draghi to adopt a more optimistic tone and talk up the region’s recovery.
  • When the ECB governing council last met in early March, inflation was above the bank’s target of below but close to 2 per cent for the first time in four years, while growth has been higher than expected.
  • The council made only minor adjustments to its views on its monetary policies and the economic outlook, however, concerned that markets could overinterpret a shift in tone as a signal that the ECB would soon begin a discussion on tapering its bond-buying programme.
  • The ECB will from April buy €60bn of mostly government bonds each month under a policy dubbed quantitative easing. It plans to do so at least until the end of this year.
  • While that plan is expected to remain in place, the bank could begin discussions later this year to taper, or slow, the pace of its bond buying in 2018.
  • Mr Draghi has said the council wants to see “underlying” price pressures re-emerge and inflation to rise steadily over a number of months before abandoning QE.
  • Hawks on the governing council are now expected to rein in their calls for the ECB to move more quickly towards the monetary stimulus exit.
  • The most vocal of Mr Draghi’s critics were in Germany, where inflation fell from 2.2 per cent in February to a harmonised rate of 1.5 per cent this month.
  •  Most analysts had not expected inflation to drop so sharply this month. While the main reason for the drop was lower energy prices, last year’s early Easter also affected the data.
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