Calls for European Central Bank action to help protect
the eurozone's fragile recovery have grown after the
release of inflation and jobless data.
Official figures showed that eurozone inflation fell to
0.7% in January, down from 0.8% in December and
further below the ECB's 2% target.
It has fuelled worries about whether the euro bloc could
suffer deflation, potentially de-railing economic growth.
Separate data showed the unemployment rate in
December was unchanged at 12%.
Downward spiral
The European Union's statistics agency, Eurostat, said
that although there was a 1.7% rise in the cost of food,
alcohol and tobacco in January, energy costs fell 1.2%.
Many economists had forecast the eurozone's inflation
rate would rise slightly in January. The rate last touched
0.7% in October, which was the lowest reading for the
18-nation eurozone in almost four years.
Concerns about possible deflation - where the price of
goods and assets are locked in long-term decline,
hitting corporate profits, wage growth, and tempting
consumers to delay purchases in the hope of further
falls - have grown in recent months.
At last week's World Economic Forum, in Davos,
Christine Lagarde, head of the International Monetary
Fund, said eurozone inflation was "way below" target
and that the risks to the bloc's fragile economic
recovery should not be ignored.
Mario Draghi, president of the ECB, has said that
although inflation was "subdued, and expected to
remain subdued" for about two years, he was confident
that it would return to target. But he added that the
ECB was ready to act if necessary.
Meanwhile, separate figures from Eurostat on Friday
showed there were about 19.1 million jobless in the
eurozone in December, down 129,000 from November
2013, but up 130,000 from December 2012 when the
debt crisis was at its peak.
Eurostat also said the unemployment rate for November
had been revised down from 12.1% to 12%.
"The job crisis is far from over and efforts must
continue at EU level and in member states to fight this
scourge and ensure an inclusive and sustainable
recovery," said EU employment commissioner Laszlo
Andor.
Rate cut?
Aberdeen Asset Management analyst Luke Bartholomew
said it was "now more likely than ever that Draghi is
going to have to step in with some extraordinary
measure to stave off deflation.
"The big challenge is exactly what to do. With the store
cupboard of conventional measures largely bare, any
policy action is likely to be unprecedented."
Jonathan Loynes, chief European economist at Capital
Economics, said action from the ECB could come as
early as next week, when policymakers meet.
He said: "Unemployment remains very close to its
record high, suggesting that there is still considerable
slack in the currency union's labour market.
"Against this background, and with the strong euro
adding to deflation risks, the pressure on ECB president
Mario Draghi to follow up his recent dovish words with
further policy action is very strong."
He said that Mr Draghi appeared "lukewarm" about
injecting more money into the eurozone, through
measures such as quantitative easing. "Another interest
rate cut is perhaps the most likely move, if not next
week then in March," Mr Loynes said.
The ECB cut its key interest rate to a record low of
0.25% in November.
Frederik Ducrozet, a senior eurozone economist at
Credit Agricole, said: "The ECB's sensitivity to inflation
data was already high and even a small surprise like
this one today might tip the balance towards more
easing.
"I would not expect action next week, rather a stronger
wording for a possible cut later, possibly in March," he
added.
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