Eurozone prices, jobs firm but deflation threat remains

GMT 14:24 2015 Monday ,02 March

Arab Today, arab today Eurozone prices, jobs firm but deflation threat remains

Prices in the 19-nation eurozone were down 0.3% in February
Brussels - AFP

The eurozone's fall in consumer prices eased while jobless figures fell slightly Monday, but the modest improvements were not enough to reduce fears of a deflationary spiral.
Analysts said the figures were welcome but the European Central Bank will still have to pull out the stops to prevent the economy stalling as oil prices continue to fall sharply, stoking the deflation threat.
Consumer prices in the 19-nation eurozone were down 0.3 percent in February, less than the drop of 0.6 percent in January when tumbling energy prices slashed the cost of living, the EU statistics agency Eurostat said.
Energy prices alone were down 7.9 percent, slowing only slightly after a fall of 9.3 percent in January, Eurostat said.
The jobless figures were modestly encouraging, with unemployment down to 11.2 percent from 11.3 percent in December to hit its lowest level since April 2012.
The eurozone economy has recovered only slowly from its prolonged debt crisis and virtually stalled in the third quarter of 2014 with growth of just 0.2 percent, followed by a slightly better 0.3 percent in the fourth.
Analysts feared especially that falling prices would see consumers put off purchases to buy goods when they are cheaper.
This classic change in behaviour undercuts demand, which in turn hits company investment and jobs in a vicious deflationary cycle.
Aiming to head off deflation, the ECB in January launched a massive 1.1 trillion euro stimulus programme to flood the financial system with cheap money and so boost investment.
Analysts were guarded in their response to the data, suggesting that the improvement was very modest and that the ECB faced a real struggle to get the economy firing again.
"February’s continued fall in eurozone consumer prices and the still high rate of unemployment in January confirm that the ECB faces an uphill battle against the threat of deflation," said Jennifer McKeown of Capital Economics.
The improvement in the consumer price report "failed fully to reverse last month’s fall and the rate is still lower than at any other time since 2009," McKeown said.
Falling energy prices were likely to undercut the headline figure for the next six months while the unemployment rate was still uncomfortably close to record levels near 12 percent, she said.
In all, the data show the economy was not growing fast enough to absorb all the slack, McKeown added.
Fears about Greece's international bailout under its new government have further clouded sentiment.


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