Takara Global: Prices continue to fall in the Eurozone despite negative rates and quantitative easing.
Takara Global – Consumer prices in the Eurozone have dropped for the second consecutive month in March thanks, largely, to declining energy prices.
According to the latest statistics, core prices were 0.1% lower than a year ago. Although the figure was a marginal improvement on February’s reading when deflation was running at 0.2%, it maintains the pressure on the European Central Bank (ECB) to take appropriate steps to further to boost prices.
“The ECB’s already increased its asset purchase program by €20bn a month and taken interest rates into negative territory so we think it will wait to determine the effect of those monetary policy moves,” said a Takara Global strategist.
Deflation can be harmful for economies, particularly in instances where consumers postpone buying products in the hope of buying them more cheaply when prices fall further.
“We think the last thing the Eurozone needs is higher prices. Lower prices stoke demand, higher prices don’t” added the Takara Global strategist.
The official data, from the Eurostat agency, showed energy prices were 8.7% down on a year ago. The ECB is tasked with keeping inflation close to, but under, 2%.
The fresh measures included cuts to all three of the ECB’s main interest rates, €20 billion a month of additional bond purchases atop the ECB’s current €60 billion ($67 billion) program, and an expansion of its quantitative easing program to highly rated corporate bonds—all more aggressive steps than analysts had anticipated. The central bank also announced a series of ultracheap four-year loans to banks, some of which could be paid to borrow from the ECB.
Core inflation, which strips out energy prices, was running at 0.9% in March, slightly higher than February’s 0.8%, but still significantly below the ECB’s target rate.
Earlier this month the central bank redoubled its efforts to boost Eurozone economies. The ECB reduced its main interest rate from 0.05% to 0% and slashed its bank deposit rate, from minus 0.3% to minus 0.4%.