Saturday 1 October 2016

ECB likely to loosen monetary policy as eurozone inflation falls faster than expected

Alessandro Speciale

Published 28/02/2016 | 02:30

Consumer prices slid in Germany, France and Spain in the year to February, figures showed last Friday. In Germany, the EU-harmonised rate of inflation slowed to minus 0.2pc, compared with a prediction for no change in a Bloomberg survey. The rate dropped an annual 0.1pc in France, compared with a forecast of a 0.1pc rise. Spanish prices slid 0.9pc, compared with an estimated decline of 0.6pc. Photo: PA
Consumer prices slid in Germany, France and Spain in the year to February, figures showed last Friday. In Germany, the EU-harmonised rate of inflation slowed to minus 0.2pc, compared with a prediction for no change in a Bloomberg survey. The rate dropped an annual 0.1pc in France, compared with a forecast of a 0.1pc rise. Spanish prices slid 0.9pc, compared with an estimated decline of 0.6pc. Photo: PA

Eurozone inflation looks to be cooling faster than expected, with prices in three of the region's four largest economies missing estimates and strengthening the case for an expansion of the ECB's monetary stimulus in March.

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Consumer prices slid in Germany, France and Spain in the year to February, figures showed last Friday. In Germany, the EU-harmonised rate of inflation slowed to minus 0.2pc, compared with a prediction for no change in a Bloomberg survey. The rate dropped an annual 0.1pc in France, compared with a forecast of a 0.1pc rise. Spanish prices slid 0.9pc, compared with an estimated decline of 0.6pc.

The ECB will review and possibly loosen its monetary policy at its March 10 meeting as it attempts to revive price growth amid an oil slump and a weak global economy. Inflation in the 19-nation area has fallen short of the ECB's goal of just under 2pc for almost three years, and data next week is likely to show the rate falling back to zero.

"The decline in inflation across the region may come even steeper than expected," Johannes Gareis, an economist at Natixis in Frankfurt, said before the German release. "The data send a clear message to the ECB and the only question that remains now is how bold action would be."

German 10-year government bonds are headed for their sixth weekly gain amid speculation the ECB will act in March. The yield reached 0.13pc on Wednesday, the lowest since April.

A first reading of February euro-area inflation will be published on Monday, with early results of a survey showing economists predict prices stagnated, down from a 0.3pc gain in January (estimates submitted after Friday's data came out). ECB policy makers have warned that price growth may turn negative in the first half of the year.

German inflation is now the slowest in 13 months, with France's the weakest in a year, and Spain's rate at a five-month low.

Bloomberg

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