Eurozone prices, jobs firm but deflation threat remains
(BRUSSELS) - The eurozone's consumer price downturn eased and jobless figures picked up slightly Monday but the modest improvements were not enough to dispell all fears of a deflationary spiral.
Analysts said the figures were welcome although the European Central Bank will still have to pull out all 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.
Howard Archer of IHS Global Insight said the two reports were "a double dose of good news for the eurozone."
Improving price data "may dilute fears that pervasive deflation could become entrenched in the eurozone with long-term debilitating growth effects," Archer said.
For the moment, lower prices appeared to be giving consumer demand a boost with "little evidence that eurozone consumers are delaying purchases," he added.
- Stalling economy -
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 the danger, 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.
ECB head Mario Draghi said the aim was to stimulate the economy enough to drive inflation back up to the central bank's target of close to 2.0 percent.
The ECB would continue the extraordinary measures "until we see a sustained adjustment in the path of inflation," he added.
Jennifer McKeown of Capital Economics said the ECB's programme "is unlikely to push inflation to anywhere near the ECB's target... and the risk of a sustained bout of deflation remains significant."
The two latest reports show clearly that the economy was not growing fast enough to absorb all the slack, McKeown said.
Peter Vanden Houten of ING Bank said the oil price impact would fade in time, easing the deflation threat, but the economy was not out of the woods with unemployment still some four percentage points above 2008 pre-crisis levels.
"The eurozone economy has now been trapped in a stop-and-go recovery for years and it would be unwise to give the all-clear sign too soon."
Fears about Greece's international bailout under its new government and the Ukraine crisis have further clouded the outlook.