Eurozone inflation plunge may vindicate Draghi

Eurozone inflation plunged this month, likely vindicating European Central Bank president Mario Draghi’s cautious policy stance and proving that the bloc may be years away from a sustained rise in consumer prices.

Inflation in the 19-member currency union fell to 1.5 per cent in March from a four-year high of 2 per cent in February, well below expectations for 1.8 per cent as energy, food and services prices rose slower than last month, Eurostat said.

Underlying inflation, a measure closely watched by the ECB, meanwhile fell to 0.7 per cent from 0.9 per cent, all but erasing pressure on Mr Draghi to tighten the ECB’s money taps soon, many months before its currency guidance.

When overall inflation hit the ECB’s target last month, conservative countries like Germany piled pressure on Mr Draghi, calling for an end to the bank’s €2.3 trillion asset-buying scheme.

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But the ECB repeatedly rejected those calls, arguing that inflation has peaked this year and will not return back towards its 2 per cent target perhaps until 2019, as unemployment remains high, wage growth is anaemic and the economy is still operating with significant slack.

Policymakers have also warned that small changes in the bank’s message earlier this month may have been overinterpreted as they pointed to reduced risks and not to the first step to the exit.

– (Reuters)