Newspaper article International New York Times

Prices Fall in Europe, but So Does Jobless Rate ; Deflation Is Still a Threat, but Signs Are Pointing to a Mild Recovery for Region

Newspaper article International New York Times

Prices Fall in Europe, but So Does Jobless Rate ; Deflation Is Still a Threat, but Signs Are Pointing to a Mild Recovery for Region

Article excerpt

Two reports reinforced the view that Europe is experiencing a mild recovery, lifted by low oil prices, the weak euro and aggressive stimulus from the European Central Bank.

The eurozone continues to flirt with deflation, an official report showed on Tuesday, as consumer prices fell in March for a fourth consecutive month.

A separate report showed that fewer people in the 19-nation currency union were out of work in February as the unemployment rate dipped slightly.

While the data gave little reason to cheer, the reports did not alter the view that Europe, despite its problems, is experiencing a miniboom, lifted by low oil prices, the weak euro and aggressive stimulus from the European Central Bank.

Consumer prices fell 0.1 percent from a year earlier, Eurostat, the statistical agency of the European Union, reported from Luxembourg. The inflation rate turned negative in December, falling to as low as minus 0.6 percent in January. Energy prices in March led the decline, falling 5.8 percent from a year earlier.

The latest reports "did not lift the threat of a prolonged period of deflation in the currency union," Jonathan Loynes, chief European economist at Capital Economics, said in a research note. He pointed out that the "core" inflation rate, which strips out volatile food and energy costs, actually fell to 0.6 percent from 0.7 percent. The latest reading was the lowest since Eurostat began measuring it in 1997.

Fearing the effect that too-low prices could have on the economy, the European Central Bank has undertaken a policy of quantitative easing, under which it will buy up to 60 billion euros, or about $65 billion, a month of bonds, including sovereign debt. The central bank is trying to bring inflation up to its target of just under 2 percent, a level not reached since January 2013.

Tuesday's inflation and jobless figures were in line with economists' expectations.

Eurostat said that the jobless rate in the eurozone fell to 11.3 percent in February from an upwardly revised 11.4 percent in January. That was the lowest unemployment rate for the region since May 2012, but there has been little to suggest that hiring is about to take off.

Mr. Loynes noted that unemployment "remains very high by historical standards," not far from the record 12.1 percent reached in 2013 -- "signaling the persistence of a large amount of spare capacity in the labor market."

Some economists took heart over the fact that the decline in headline consumer prices had slowed, suggesting that inflation could turn positive again before long, especially if the downturn in energy costs was not sustained. But the measure that matters most to policy makers, core inflation, is still moving in the wrong direction.

The lower core rate reinforced expectations that the central bank would keep pushing policies that effectively weaken the euro. …

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