By Paul Hannon
Consumer prices in the 28-member European Union rose at the
slowest pace for four-and-a-half years in the 12 months to March,
indicating that falling inflation rates are a problem for economies
throughout the continent, and not just those that share the
euro.
The European Union's statistics agency Wednesday said consumer
prices in the 18 nations that share the euro were 0.9% higher than
in February, and 0.5% higher than in March 2013. That confirmed the
preliminary estimate released late last month, and is the lowest
annual rate of inflation since November 2009.
Eurostat said the core rate of inflation--which strips out
volatile items such as energy and food--slipped to 0.7% from 1.0%
in February, matching the record low reached in December 2013.
Eurostat also said the annual rate of inflation in the broader
EU--which includes 10 countries that don't use the euro--fell to
0.6% from 0.8% in February, its lowest level since October
2009.
Eurostat's figures show that five euro-zone members experienced
declines in prices in the 12 months through March, while three
members of the EU that don't use the euro shared the same
experience. But other members were on the cusp, with four euro-zone
members recording inflation rates below 0.5%, as did four EU
members that don't use the euro. Of the EU's 28 members, only one
had an inflation rate in excess of 1.5%: the U.K., where prices
rose 1.6% in the 12 months to March.
The slowdown in inflation is a mixed blessing. While it should
help boost real incomes at a time of weak wage growth, it also
raises the specter of deflation--a sustained and self-reinforcing
fall in prices that can play havoc with public and private efforts
to repay debts and risks bringing consumer spending to a halt.
Policy makers at the European Central Bank have repeatedly said
they don't expect to see a period of falling prices across the
currency area as a whole. They reject comparisons with Japan, which
struggled with deflation for two decades, saying the ECB has acted
more decisively than Japan did in the 1990s and that European banks
are stronger.
But they have acknowledged that very low rates of inflation are
a worry, and in recent weeks have focused on the role of an
appreciating euro in pressing down on import prices and
activity.
ECB President Mario Draghi Saturday ratcheted up his warnings
about the strong euro, saying a further rise in the exchange rate
against other currencies would trigger additional monetary easing
to keep inflation from falling too low.
"A strengthening of the exchange rate requires further monetary
stimulus. That is an important dimension for our price stability,"
Mr. Draghi said at a news conference during meetings of the
International Monetary Fund.
Write to Paul Hannon at paul.hannon@wsj.com