Eurozone Inflation Raises Rate Cut Expectation

The pressure on the European Central Bank to cut interest rates again ratcheted up on Friday after figures showed inflation unexpectedly falling further below its target.

Consumer price inflation in the 18-country eurozone fell to 0.7 percent in the year to January from 0.8 percent the previous month, the Eurostat agency said.

The decline was unexpected – the consensus for a rise to 0.9 percent – and reinforced fears that the eurozone is about to suffer a Japanese-style bout of deflation that would further hobble the stagnant recovery. Once prices start to fall, economies can become moribund as consumers delay purchases in the hope of getting bargains later and businesses postpone investment and innovations.

The ECB holds its monthly meeting Thursday and a growing number of economists think it may ease monetary policy soon in response to these deflation fears. The ECB targets inflation at just below 2 percent. The U.S. Federal Reserve, by contrast, also monitors unemployment.

via Mainichi

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