Euro zone inflation to offer clues on ECB action

Sun Feb 23, 2014 2:12pm EST
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By Philip Blenkinsop

BRUSSELS (Reuters) - Euro zone inflation due on Friday will be firmly in the sights of financial markets eager to establish whether the European Central Bank (ECB) has enough ammunition to ease monetary policy in the following week.

Inflation in the 18-member euro zone unexpectedly slowed to 0.7 percent year-on-year in January, matching a four-year low set last October and confounding expectations for a rise to 0.9 percent.

The ECB cut its main refinancing rate to a record low of 0.25 percent in November and left it at that level at its meeting earlier this month, but put markets on alert for a possible move in March.

ECB President Mario Draghi said the Governing Council had not acted because of the complexity of the situation and the need to have more information.

The next meeting on March 6 will have new forecasts from the bank's staff extending into 2016.

Friday's February inflation figure could cause a fine-tuning of those forecasts, which form the basis of the ECB's monetary policy.

"The big issue is whether they are comfortable with their medium-term trajectory. That's obviously something that's going to get revised down a bit ... Next week's reading will in some sense influence their thinking," said David Mackie, chief European economist at JP Morgan.

Further country data could mean the January figure being revised up to 0.8 percent on Monday, but the consensus view is for a 0.7 percent reading for February.   Continued...

A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe, January 9, 2013. REUTERS/Kai Pfaffenbach