German annual inflation turned negative in February, hitting the lowest level in more than a year, data showed on Friday, in a further sign that price pressures in the eurozone weakened more than expected ahead of a central bank meeting next month. The data came after French inflation also unexpectedly dropped below zero on slumping energy prices in February, giving proponents of further monetary policy easing more ammunition for a pivotal meeting of the European Central Bank in March.
German prices, harmonised to compare with other European countries (HICP), fell by 0.2 percent on the year after having risen by 0.4 percent in January, preliminary data from the Federal Statistics Office showed. The reading, well below the European Central Bank's target for the whole euro zone of just below 2 percent, came in below the Reuters consensus forecast for prices to remain unchanged.
It was also the weakest reading since January 2015 when harmonised annual consumer prices inched down 0.4 percent. For the euro zone, economists polled by Reuters expect the February inflation rate, due out on Monday, to have fallen to 0.0 percent from 0.3 percent in January.
But Capital Economics analyst Jessica Hinds said the surprisingly weak inflation data from Germany, France and also Spain now pointed to an even weaker euro zone reading. "All in all, today's data suggest that the euro zone headline rate will fall below zero in February," Hinds said. "And with inflation expectations low and falling, the threat of a more persistent bout of deflation remains very real. As such, the ECB cannot afford to disappoint expectations of more stimulus in March."
The ECB is widely expected to cut its deposit rate by 10 basis points to -0.4 percent on March 10 and economists polled by Reuters say the size of the bond-buying scheme could be extended by 10-30 billion euros a month. Its monthly asset purchases are currently at 60 billion euros. Berenberg bank economist Holger Schmieding said he expected the ECB to scale up its monetary stimulus, but not to break new ground by buying corporate bonds including senior bank bonds.
"We expect the ECB's package to combine additional bond purchases with a more negative deposit rate and a targeted measure to address the exaggerated concerns about the health of the euro zone banking system," Schmieding said. On a non-harmonised basis, German annual inflation slowed to zero percent in February from 0.5 percent in January. A breakdown of the non-harmonised data showed a steep drop in energy prices was the main drag on the headline figure, while prices for food and services rose less sharply than a month ago. The statistics office said it would publish final consumer price data for February on March 11th.
Comments
Comments are closed.