Euro zone price pressures persist, constrain ECB action

Mon Apr 30, 2012 7:03am EDT
 
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By Robin Emmott

BRUSSELS (Reuters) - - Price pressures stayed high in the euro zone in April in the face of a likely recession, keeping interest rate cuts off the agenda for a European Central Bank seeking ways of reviving economic growth within its inflation mandate.

Annual consumer price inflation in the 17 nations sharing the euro moderated to 2.6 percent from 2.7 percent in March, the EU's statistics office Eurostat said on Monday. Economists polled by Reuters had forecast 2.5 percent.

As the euro zone heads into its second recession in just three years, some of its leaders are rallying to a call by ECB President Mario Draghi to reignite the bloc's economy with policies that focus on growth and not just debt and deficit reduction.

But the ECB's strong focus on containing inflation within touching distance of a target of close to but below 2 percent at a time of high world oil prices means politicians cannot expect action to lower the cost of borrowing any time soon.

"The likelihood of inflation falling below 2 percent in the short run remains low, putting the ECB in a difficult situation," Peter Vanden Houte, an economist at ING, said in a note.

"As the German members of the ECB's governing council have been warning of inflationary pressures potentially building up, a further rate cut seems out of the question."

While inflation is below last year's peak of 3 percent, economists and the ECB had expected prices to fall steadily as the economy stumbles and to offer some relief to households at a time of rising unemployment and sharp spending cuts.

The rate of consumer price inflation rose in March from February and is now only back at February's level, according to Eurostat, driven up by persistent worries of a crude oil supply disruption in the Middle East.   Continued...

 
A sculpture showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt February 29, 2012. REUTERS/Alex Domanski