European Prices Fall for Fourth Month

Consumer prices across the European Union fell for the fourth straight month in March, but at a slower rate, a sign that the threat of a slide into deflation is easing as central banks launched new stimulus measures and energy prices steadied.

Data released earlier this month showed that consumer prices in the eurozone, comprising 19 countries that use the euro as their currency, also fell at a slower pace.

Eurostat on Friday said consumer prices in the 28-nation bloc fell 0.1% in March from a year earlier, and confirmed data that showed prices in the eurozone were also 0.1% lower. In February, prices fell by 0.3% in the EU as a whole, a figure that was revised from an earlier estimate of 0.2%.

Twelve EU members experienced an annual decline in consumer prices in March, down from 20 in February.

The decline in prices in the 12 months to March was largely due to a drop in energy costs, although that eased markedly. In the eurozone, energy prices rose 1.7% from February.

There are signs that growth has picked up in the early months of 2015. But while he welcomed signs that a recently launched stimulus program is aiding the eurozone economy's recovery, European Central Bank President Mario Draghi on Wednesday stressed the need to complete the full course of over EUR1 trillion ($1.1 trillion) in bond purchases by September 2016 if inflation is to return to a target of just under 2%.

Analysts surveyed by the ECB expect inflation to reach lower levels this year than they had previously forecast, before gradually picking up in response to ECB policy measures and exchange rate moves.

The ECB's Survey of Professional of Forecasters, a quarterly poll of analysts not representing the views of ECB staff, said that inflation in the 19-country currency bloc would only be 0.1% this year, a reduction of 0.2 percentage point compared with the forecast made in January.

Inflation, however, is due to pick up more speed in future years, the forecasters said. They now see inflation next year at 1.2%, compared with the 1.1% expected in January, while for 2017 they forecast an inflation rate of 1.6%, compared with a previous projection of 1.5%.

With unemployment still high and wages rising slowly, underlying pressures on prices remain weak, with the core rate of inflation in the eurozone--which excludes energy and food costs--falling to 0.6% from 0.7% in February.

Economists and central bankers worry that if households and businesses become accustomed to falling prices, they will cut back on spending, lowering output and employment and pushing prices even lower.

The decline in prices across the continent as 2015 began means there is a risk that Europe may slide into such a deflationary spiral, although most central bankers say that is unlikely.

To minimize the risk of deflation, central bankers have provided more stimulus, adopting a range of unconventional measures in an effort to boost prices. Some have signaled that they are unlikely to take any further action, but remain on alert should the fall in prices accelerate.

Write to Paul Hannon at [e-mail]

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