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Financial News: Eurozone Inflationary Pressures Remain Subdued

Eurozone Inflationary Pressures Remain Subdued

03/01/2019 - 09:42:00 (RTTNews)

(RTTNews) - Eurozone inflation accelerated in February, while core price growth eased, suggesting that price growth pressures remain muted in the 19-nation economy, causing concern for the European Central Bank that is set to hold its policy session next week.

Separate data showed that the euro area unemployment rate held steady in January, and the Eurozone manufacturing sector contracted in February for the first time in nearly six years.

The flash harmonized inflation for February was 1.5 percent, which was higher than January's 1.4 percent, data from Eurostat showed on Friday. The latest rate was in line with economists' expectations.

Meanwhile, the core inflation rate that excludes energy, food, alcohol and tobacco, slowed to 1 percent in February from 1.1 percent in January. Economists had expected the rate to remain unchanged.

Energy price inflation accelerated to 3.5 percent in February, from 2.7 percent in January, marking the highest annual rate among the main components.

Prices in the food, alcohol and tobacco group rose 2.4 percent year-on-year after a 1.8 percent climb in January. Services costs grew 1.3 percent following 1.6 percent rise in January.

Eurostat is set to release the full data for February inflation on March 15.

The ECB is set to hold its policy session on March 7, when the bank President Mario Draghi will unveil the latest set of macroeconomic projections prepared by the ECB Staff.

Economists widely expect further downgrade to the growth and inflation forecasts.

"The new staff projections are sure to see weaker growth projections to be released, but core inflation also looks high for 2019," ING economist Bert Colijn said.

"Add to that the significant downside risks that hang over the Eurozone economy, and you'll find an ECB gearing up towards measures to counter unwarranted tightening next week, not normalization."

Separately, Eurostat reported that the euro area unemployment data was steady at 7.8 percent in January after December's figure was revised down from 7.9 percent.

Economists had expected the rate to remain unchanged at December's original 7.9 percent.

The latest jobless rate was the lowest rate recorded in the euro area since October 2008, Eurostat said.

Elsewhere on Friday, survey data from IHS Markit showed that Eurozone factory output declined for the first time since June 2013.

The final manufacturing Purchasing Managers' Index dropped to 49.3 from 50.5 in the previous month. The flash reading for February was 49.2.

A PMI reading below 50 suggests contraction in the sector.

Both output and new orders fell, while price pressures continued to ease. Export orders decreased for a fifth successive month and at the fastest pace in over six years.

The latest slowdown was largely due to the weakness in the intermediate and investment goods.

Among the main euro area countries, manufacturing growth slowed in the Netherlands and Austria, and the sector contracted in Spain, Italy and Germany.

In contrast, factory growth increased in Greece, Ireland and France.

Despite the latest slowdown, manufacturers continued to raise their staff levels at a solid pace, extending the rising trend seen since September 2014.

On the price front, input costs rose at the slowest pace since October 2016 and output charges grew at the weakest rate since the end of 2016.

"Euro area manufacturing is in its deepest downturn for almost six years, with forward-looking indicators suggesting risks are tilted further to the downside as we move into spring," IHS Markit Chief Business Economist Chris Williamson said.

"Spare capacity is consequently developing, which means companies are likely to take a more cautious approach to hiring and investment, and instead focus on cost control," he added.

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