Euro-area inflation was negative for a second month in March, in data released on the eve of the European Central Bankâ€™s first day of expanded debt purchasing to fight deflation.
The consumer price index in the 19-nation bloc fell 0.1 percent from a year earlier after a 0.2 percent drop in February, according to data published on Thursday. That matches the median prediction in a Bloomberg survey of economists. Core inflation, which strips out volatile elements such as food and energy, was at 1 percent, up from 0.8 percent in the prior month.
â€œWe have seen energy putting a lot of downward pressure on headline inflation,â€ said Marco Valli, chief euro-area economist at UniCredit Bank AG in Milan. â€œMonetary policy cannot do it all, but in the short term itâ€™s basically the only game in town. Thatâ€™s how it is now, and probably how it will be if a further shock hits the economy in next months.â€
The ECB will on Friday beef up monthly bond purchases to 80 billion euros ($91 billion) from 60 billion euros, after President Mario Draghi this month unveiled a raft of new measures to spur price growth, including lowering its deposit interest rate deeper into negative territory. Inflation hasnâ€™t come near the ECBâ€™s goal of just under 2 percent since 2013, and a moderate economic recovery has been insufficient to counteract falling oil costs.
An index of executive and consumer confidence in the euro area slumped for a third month to its lowest level in more than a year in March, the European Commission in Brussels said on Wednesday. Data on Friday will probably show the regionâ€™s unemployment rate remained unchanged at 10.3 percent in February, according to economists in a Bloomberg survey.
The euro-wide number follows low readings in the regionâ€™s biggest economies. In Germany, the European Union-harmonized inflation rate rose to 0.1 percent from minus 0.2 percent, according to data released on Wednesday. The rate in France was minus 0.1 percent, while Spanish prices fell 1 percent.
The â€œrecovery of the core inflation rate is a relief to policy makers, who fear that low energy prices are causing a negative spiral of prices and wages,â€ said Bert Colijn, an economist at ING in Amsterdam. â€œThis release shows that the trend in core inflation remains stagnant, so at least it is not moving towards deflation.â€
Central bankers around the world been boosting monetary stimulus measures or slowing the pace of tightening in response to volatility in financial markets. Draghiâ€™s asset purchase plan is driving down government bond yields as investors face even higher demand, with supply unable to keep up.
â€œOne of the aims of negative interest rates was to push investors further down the risk spectrum into other assets and boost their prices,â€ Stewart Robertson, an economist at Aviva Investors, said in a Bloomberg TV interview with Manus Cranny and Anna Edwards. â€œThat hasnâ€™t really happened.â€