Euro zone February prices fall less than expected, unemployment down

Mon Mar 2, 2015 10:08am EST
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By Jan Strupczewski

BRUSSELS (Reuters) - Euro zone consumer prices fell by less than expected in February while unemployment eased in January for the third month in a row, offering signs that the risks of economic stagnation and deflation in the bloc are falling.

The European Union's statistics office Eurostat estimated on Monday that consumer prices in the 19 countries sharing the euro fell 0.3 percent year-on-year in February after a 0.6 percent annual drop in the previous month. Economists polled by Reuters had expected a 0.4 percent price decline.

"A double dose of good news for the euro zone. This may dilute fears that pervasive deflation could become entrenched in the euro zone with long-term debilitating growth effects," said Howard Archer, economist at His Global Insight.

"The further drop in unemployment should be supportive to euro zone consumers and they are benefiting from the boost to their purchasing power coming from deflation."

Unemployment, usually the last indicator to react to better economic conditions, fell for the third month in a row to 11.2 percent in January from 11.3 percent in December.

Eurostat said that much cheaper energy, prices for which were 7.9 percent lower in February than a year earlier, and a 0.2 percent decline in prices of non-energy industrial goods were the main factors pulling down the overall inflation index.

Without the volatile energy and unprocessed food components, a measure the European Central Bank calls core inflation, prices grew 0.6 percent year-on-year, the same as in January.

"With oil prices gently moving higher, we forecast that the negative impact of energy price falls on headline inflation will eventually wane in the rest of the year," said Gizem Kara, economist at BNP Paribas.   Continued...

A woman looks at a shop window along the commercial Ermou Street in central Athens January 13, 2015. REUTERS/Alkis Konstantinidis