Euro zone deflation eases as unemployment drops

A slump in euro-area consumer prices eased in March, offering respite to the European Central Bank after it ramped up stimulus to fend off a deflation threat.

The annual rate of inflation in the 19-nation bloc climbed to -0.1 per cent from -0.3 per cent in February, the European Union's statistics office in Luxembourg said on Tuesday.

It was the fourth consecutive reading below zero.

The European Union’s data agency also reported that unemployment across the single currency area slipped to 11.3 per cent in February, down from a revised 11.4 per cent in January and 11.8 per cent a year before.

The Frankfurt-based ECB pledged to buy €1.1 trillion of assets including government bonds through September 2016 to fend off deflation.

ECB president Mario Draghi, who pushed the program through against resistance from Germany, has already signalled that he expects victory and presented forecasts showing inflation back in line with the bank's mandate of just below 2 per cent in 2017.

"The inflation rate is set to rise again over the course of the year, mainly because oil prices will start increasing at some point as well," said Marco Wagner, an economist at Commerzbank AG in Frankfurt. "The latest ECB measures might of course have an effect as well, but it's probably minor."

Bundesbank president Jens Weidmann, who opposed the programme, has argued that consumer prices would pick up anyway as the drop in energy costs adds to previous ECB action in stimulating the economy.

Core inflation in the euro area slowed to 0.6 per cent in March from 0.7 per cent, according to today’s report. Energy prices fell 5.8 per cent after a 7.9 per cent decline in February.

Economists surveyed by Bloomberg forecast euro-area consumer prices will remain unchanged this year before rising 1.2 per cent in 2016.

The ECB also projects stagnating prices for 2015 and sees inflation at 1.5 per cent in 2016 and 1.8 per cent in 2017. In Spain, where the inflation rate has been below zero for nine months, the slump in consumers prices moderated in March after hitting a record low of minus 1.5 percent in January.

In Germany, the rate turned positive for the first time in three months as a recovery in the region’s largest economy gathers momentum