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Eurozone Inflation Eases In March

Eurozone Inflation Eases In March

Eurozone inflation eased in March but at a slower than expected pace, the flash estimate published by Eurostat showed Friday.

Annual inflation fell to 2.6 percent in March from 2.7 percent in February. March's inflation was the lowest since August 2011, but slightly higher than the 2.5 percent consensus forecast.

Inflation remains above the European Central Bank's 'below, but close to 2 percent' target. The breakdown of data will be made available on April 17.

Despite inflation staying above target, the ECB resorted to maintain its record low interest rate for the third straight time in March as growth concerns and debt crisis weighed on the decision. The central bank has never cut the rate below 1 percent.

Weak economic activity and high unemployment are currently limiting inflationary pressure. But, inflation is not easing as quickly as anticipated.

IHS Global Insight European Economist Howard Archer said the current strength of oil prices means that Eurozone inflation could well be sticky for some time to come. This would be a blow to the recovery prospects as it will squeeze consumers' purchasing power further, while high oil prices will pressurize companies' margins.

EU harmonized inflation in Germany slowed to 2.3 percent in March from 2.5 percent in February. Likewise, Spanish inflation fell to 1.8 percent from 1.9 percent. On the other hand, Italy's inflation rose to a five-month high of 3.8 percent from 3.4 percent in February.

Inflation will continue its gradual downward trend in the remainder of this year on the back of slower food and core inflation, ING Bank Economist Martin van Vliet said. But the chances of inflation falling durably below the target clearly dwindled with high oil prices and the VAT hikes in France and Italy planned for autumn, he added.

by RTT Staff Writer

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