LONDON – Inflation across the 18-country eurozone rose in April, official figures showed Wednesday, but not as much as had been anticipated in the markets. Even so, few economists think the European Central Bank is quite ready to back another stimulus to the eurozone economy.
Eurostat, the EU’s statistics office, said consumer prices rose by 0.7 per cent in April from the year before, up from the previous month’s 0.5 per cent.
The expectation in the markets was for a slightly bigger rise to 0.8 per cent. An increase had been predicted largely because of the timing of Catholic Easter, which often prompts a rise in prices. Last year it fell in March so that increase dropped out of the annual comparison.
Despite the rise, many economists expect inflation to fall again in coming months. However, the ECB thinks deflation, or an outright fall in prices, is unlikely. Deflation can weigh on the recovery as falling prices may prompt consumers to delay purchases and businesses to be reluctant to invest.
Following Eurostat’s estimate of inflation, the euro rallied somewhat to $1.3820 from $1.3790, likely because traders think inflation isn’t low enough to prompt further stimulus from the ECB just yet. Looser monetary policy tends to weigh on the value of a currency.
“April’s figures might ease some of the immediate pressure on the ECB to provide more policy support, but they don’t alter the big picture of growing deflation dangers in the currency union,” said Jonathan Loynes, chief European economist at Capital Economics.
The ECB holds its monthly policy meeting next Thursday but few economists think it’s ready to back further measures despite some recent hints that it’s ready to do more to shore up the economic recovery and prevent potential deflation. The ECB has a target of keeping inflation just below 2 per cent.
If it did act, the ECB could further cut the benchmark refinancing rate from the current 0.25 per cent or even launch a program to create new money in the economy, similar to the one pursued by the U.S. Federal Reserve.
Most economists think the ECB will want to see inflation falling further before backing more stimulus.