ECB wrestles with 'danger zone' inflation

Sun Mar 30, 2014 2:06pm EDT
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By Philip Blenkinsop

BRUSSELS (Reuters) - The European Central Bank's dilemma over barely rising prices seems likely to dominate a week starting with a euro zone inflation estimate and ending with U.S. jobs figures, the monetary policy driver on the other side of the Atlantic.

After more than a month of East-West tensions centered on Russia's annexation of Crimea, U.S. President Barack Obama and Russia's Vladimir Putin finally spoke to each other on Friday, suggesting a possible diplomatic path out of crisis.

With geopolitical issues calmer, even if not resolved, the financial markets are more likely to be guided more by global economic data and central bank deliberations.

The ECB's Governing Council meets on Thursday and, although the vast majority of economists expect it to hold interest rates <ECB/INT>, it is wrestling with a response to inflation persistently below its target of below but close to 2 percent.

The first estimate of euro zone inflation for March will be published on Monday.

Initial figures from Germany showed EU harmonized inflation easing by slightly more than forecast to 0.9 percent year-on-year, while in Spain consumer prices fell at their steepest annual pace in almost four-and-a-half years.

That could push the level for the euro zone as a whole even below the 0.6 percent consensus from February's 0.7 percent. The figure is set to be the lowest since November 2009.

It will also be a sixth straight month of inflation in the ECB's "danger zone" of below 1 percent, although the bank can point to energy and food prices as the culprits. A far later Easter this year should also lead to a rebound in April.   Continued...

An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013. REUTERS/Kai Pfaffenbach