World Economy

Eurozone Deflation Slows

Eurozone Deflation SlowsEurozone Deflation Slows

Producer prices fell at an annual rate of 2.8% in February, a slower pace of decline than January when prices fell by 3.5%.

Economists polled by Reuters had forecast annual factory gate deflation of 3%.

On a monthly basis, producer prices actually rose by 0.5%, following a 1.1% fall in January. Economists had predicted a smaller rise of 0.1%. The increase was driven by a 2% rise in energy prices, and a 0.1% increase in consumer goods prices according to Eurostat, the eurozone’s statistics agency.

On a monthly basis, prices rose at the fastest pace in Greece, up 3.5%, and fell at the fastest rate in Slovakia, down 2.2%.

  Deflation Easing

Howard Archer, chief UK and European economist at IHS Global Insight, said the data was the latest sign that eurozone deflation might be easing:

The marked weakening in the euro, improving eurozone growth and a limited firming in oil prices from their January lows currently looks to be diluting the risk of prolonged eurozone deflation. Indeed, the eurozone could possibly exit deflation in April.

Even if the eurozone does imminently exit deflation, it may still prove to be a hard slog to get eurozone consumer price inflation back up to the ECB’s target rate of “close to, but just below 2%.”

Despite improving eurozone growth, underlying inflationary pressures across the region look set to be limited for some considerable time to come.

The European Central Bank began a €1.1 trillion ($1.3t) program of quantitative easing last month, in an effort to boost growth and ward off the threat of a dangerous deflationary spiral. Inflation in the single currency bloc has been negative since December last year.