Consumer price inflation in the euro zone remained at 2.7 per cent for the second straight month in January, data showed on Wednesday, off last year’s peak and supporting bets that the European Central Bank will cut rates to help revive the economy.
Inflation in the 17 countries sharing the euro was in line with expectations of economists polled by Reuters and unchanged from December, as rising unemployment cuts into household spending and pushes businesses to freeze or reduce prices.
After two years of the debt crisis, tentative signs of a stabilization in the euro zone’s economy are restrained by limited bank lending, despite the ECB’s unprecedented offer of three-year loans, muting concerns about inflation pressures.
Although the January reading was only a first estimate by the European Union’s statistics office Eurostat, economists see inflation slowing over the next few months as many of the euro zone’s nations slip into a brief recession in 2012.
“The trend is clearly downward, we’d expect inflation to fall to around 2 per cent by mid-year,” said Clemente De Lucia, an economist at BNP Paribas.
With a benign outlook, economists also expect the ECB to take rates below 1 per cent for the first time ever in the coming months, perhaps as early as the bank’s meeting on February 9.
“We see a 25 basis point cut in the first quarter,” Mr. De Lucia said.
A Reuters poll of some 66 economists in early January suggested the bank will cut interest rates to a new record low of 0.75 per cent in February or March.
Inflation is still above the ECB’s target of below, but close to 2 per cent, which the Frankfurt-based bank judges to be right for price stability and a healthy economy.
But full inflation data in December showed that after stripping out volatile energy prices – driven up by crude oil globally over concerns about a supply disruption in Iran – core inflation was 1.9 per cent in December.
Supporting that, Spanish inflation rose less than expected in January to 2 per cent, separate data showed on Tuesday. Germany, the euro zone’s largest economy, reported slowing consumer price rises on Monday.
Increasing concern about growth and longer-term prosperity in the European Union pushed EU leaders at a summit in Brussels on Monday to promise labour reforms and easier financing for companies. But 25 of the bloc’s 27 countries also signed up to a German-inspired pact for stricter budget discipline that could stifle growth policies and keep ECB rates low for years.