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April 17, 2014

Eurozone inflation falls to lowest level since 2009

Eurozone inflation in March dropped to its lowest level in more than four years adding pressure on the currency bloc’s monetary guardians to act either by cutting interest rates or embarking on an asset-buying programme to prevent outright deflation.”

“The annual headline inflation rate in euro area was confirmed at 0.5 per cent in March compared with 0.7 per cent in February, the EU’s statistics office said on Wednesday.”

“The sharp drop will stoke fresh fears that the eurozone is drifting towards a Japanese-style bout of deflation, which has become a top concern for the European Central Bank, whose mandate is to keep the inflation rate below but close to 2 per cent. The drop has been blamed on last year’s early Easter, a period when businesses in the currency bloc’s dominant services sector tend to raise prices, and subdued energy costs.”

“Mario Draghi, the ECB’s president, signalled on Saturday that the central bank was getting ready to intervene with new unconventional monetary policy actions in a bid to fight low inflation.”

“Speaking at the end of the International Monetary Fund meeting in Washington, Mr Draghi said that “further monetary stimulus” was needed.”

“The strengthening of the exchange rate would require, to make our monetary stance equally accommodative, further monetary policy accommodation,” Mr Draghi said. “The strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for us.”

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Read full Financial Times article here.

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