At 1.2% inflation, euro hawks should be eating their words

May 16, 2013
Obsession
Euro Crunch
May 16, 2013

euro zone inflation cpi april 2013Inflation in the euro zone fell from 1.7% in March to 1.2% in April (pdf), responding to a slowing regional economy. That’s the slowest inflation rate for the region since April 2010. Even excluding energy prices, which have fallen significantly this year, inflation in the euro area sank from 1.8% in March to 1.4% last month.

The European Central Bank (ECB) targets an inflation rate of just below 2%. That’s why the central bank has been loathe to cut interest rates or ease monetary policy further since July 2012. Earlier this month, with businesses still struggling to access credit, it finally cut interest rates. But that move may have been too little, too late.

Now inflation is well below target. ECB policymakers who were concerned about acting too quickly and generating inflation should be eating their words. Prices are rising more slowly than expected, and there’s little data to suggest that an economic growth spurt (which would boost inflation) is around the corner.

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