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Euro zone deflation puts pressure on ECB

Monday, February 29, 2016 - 01:34

Prices in the euro zone fell in February, falling short of already depressed expectations and virtually ensuring another round of policy easing from the European Central Bank. Sonia Legg reports.

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Bagging a bargain at a Rome market is pretty easy these days. But stable prices aren't necessarily good news for the European Central Bank. In fact February's inflation figures will be a worry for the bank's president. The headline rate in February dipped below zero - a far cry from Mario Draghi's 2 per cent target. Justin Urquhart-Stewart is from Seven Investment Management. SOUNDBITE: Justin Urquhart-Stewart, Marketing Director, Seven Investment Management, saying (English): "Senior Draghi is going to be looking at these inflation figures with great concern - not just the headline figures, he wants to look at the core figures - what's the core's actually doing, the core will reflect not so much manufacturing but the service sector, that's the area which is probably getting a little bit more inflation." But even that's down from 1 percent to 0.8 percent, suggesting low oil prices are having an impact on goods and services. It's an alarming prospect for the ECB. It's already buying assets to the tune of 60 billion euros to try and boost growth. And many now expect further stimulus next week, even if there are risks attached. SOUNDBITE: Justin Urquhart-Stewart, Marketing Director, Seven Investment Management, saying (English): "If I were him, I would be sitting there saying it's still growing it's fine. However, later in the year we may see a steeper slowdown and that's when I may need to use my ammunition. For the time being keep your powder dry and wait and watch." The inflation data comes just days after G20 countries warned that leaders needed to look beyond ultra-low interest rates and money printing. Fine words maybe - but it was little more than food for thought as no solutions were offered.

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Euro zone deflation puts pressure on ECB

Monday, February 29, 2016 - 01:34