EU Inflation Falls Back Below Target

LONDON (AP) -- Inflation across the 19-country eurozone fell sharply in March, official figures showed Friday, due to softer underlying price increases and as some of last year's sharp rise in oil prices dropped out of the annual comparison.

The European Union's statistics agency Eurostat said the annual consumer price inflation rate was 1.5 percent, down from 2 percent in February. That puts inflation back below the European Central Bank's target of just under 2 percent and may ease the pressure on policymakers to bring an imminent end to their recent stimulus efforts.

Expectations for a sizeable decline in inflation had been anticipated after lower than anticipated German figures for March. But the scale of the fall has prompted some in the markets to suggest that inflation in the eurozone may have peaked for now.

"March's sharp slowdown in eurozone inflation was partly driven by temporary factors that will reverse in April, but the big picture is that inflation is now on a downward trend," said Jack Allen, European economist at Capital Economics. "The ECB is likely to maintain its view that the economic recovery has not put inflation on course to meet its medium-term goal."

The ECB has enacted a broad package of measures over recent years to get eurozone inflation up toward its target and shore up the economic recovery, including cutting its main interest rate to zero and buying government bonds from financial institutions to keep a lid on market interest rates. In recent months, there has been growing pressure on rate-setters to reverse course as inflation went above target — albeit for one month — and growth has shown signs of building momentum.

The likely concern for ECB policymakers is the fact that underlying price increases remain weak and, according to Friday's figures, are getting weaker. The annual core rate, which strips out the volatile items of food, energy, tobacco and alcohol, fell to 0.7 percent from 0.9 percent. That points to weak wage growth in the eurozone even at a time when unemployment has been falling.

The spike in inflation in recent months has been largely due to the sharp rise in oil prices over the past year. In March, they were up by 7.3 percent compared with the same period last year. While a lot, that's still two percentage points less than the annual rise registered in February.

(KA)