Euro Area Inflation Expected to be Down to -0.2% for February

Eurostat figures have revealed in a flash estimate, that they expect inflation to be reduced to -0.2% for February this year.

The prediction is bad news for the euro, as is represents a sharp fall in inflation from the 0.3% that was recorded for January.

Falling energy prices was unsurprisingly the largest deflationary product in the euro area, slipping to -0.8% from -5.4% last month.

Services was thought to have the highest annual rate of inflation, climbing to 1%, although that is still down from the January figure of 1.2%.

Food, drink and tobacco reached 0.7% for February, which was also down on last month, where inflation was 1%.

Non industrial goods also decelerated in February compared to January, from 0.7% down to 0.3%.

The estimate for all of the items on the Harmonised Index of Consumer Prices, was 0.2% for February, a slight fall from the January figure of 0.3%.

Inflation Figures Worse than Forecast

Many analysts thought that inflation was slowing down in the euro area, but this was a sharper fall compared to what many expected.

Forex company Moneycorps believed that that euro area will probably have slowed from 0.3% to a provisional 0.1%.

Although they were unsure on the effect that it will have on Sterling and the euro, and whether this will help reverse the trends on the UK pound, since the announcement of the EU referendum was made for June 23.

The estimated quicker reduction on inflation, now places all eyes on the European Central Bank (ECB) and how they will react to the this news at their policy meeting in Frankfurt on March 16.

The ECB’s decision last year to extend the EUR 60 billion per month quantitative easing programme to March 2017 and beyond, was designed to create liquidity resulting in a boost for inflation.

If Eurostat’s estimate is correct, this could leave the ECB with some difficult choices to make, in the attempt to reach their 2% inflation target.

Moneycorps believe that with the ECB policy meeting in clear sight, it is unlikely that today’s inflation number, will have any material effect on investors’ expectations of lower euro interest rates, and increased asset purchases by the ECB.

Although, they said that the ECB will probably feel obliged to do something if the number is markedly adrift from forecast.

And this larger than expected fall in inflation might force the ECB to take stronger action than they originally thought.

Euro Falls Against the US Dollar

The euro has reacted the inflation estimate, by falling against the US dollar, and is now buying $1.09, falling from $1.095, a pattern which is likely to continue throughout today.

There was more positive news for the euro against the UK pound, as the euro recovered from a initial slide when compared to sterling.

A euro was buying £0.786, after slipping from a high this morning GMT of £.0.789, but since the inflation announcement was made, the euro has made a comeback now buying £0.788.