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TheStreet Open House

Eurozone Inflation Falls To 3-year Low In April

By PAN PYLAS

LONDON (AP) â¿¿ Expectations are mounting that European Central Bank will cut interest rates this week after figures Tuesday showed inflation in the euro area at a three-year low and unemployment at another record high.

Expectations were already high that the ECB would cut its main interest rate from its all-time low of 0.75 percent at its monthly policy meeting on Thursday despite reservations from some members on its governing council.

Analysts said Tuesday's figures from Eurostat, the European Union's statistics office, have increased the likelihood of a reduction in borrowing rates.

Consumer prices rose 1.2 percent in the year to April across the 17 EU countries that use the euro â¿¿ its lowest level since February 2010 and way down on the 1.7 percent rate recorded in March. The figure also took markets by surprise. They had been expecting a modest decline to 1.6 percent.

The preliminary April rate is way below the ECB's target of keeping inflation "close to but below" 2 percent and therefore gives the central bank more room for manoeuver.

"If an ECB rate cut on Thursday didn't look nailed-on before, it certainly does now," said Craig Erlam, market analyst at Alpari.

Eurostat indicated that falling energy prices were largely behind the fall as well as lower service sector inflation. A fuller explanation behind the drop will emerge in a more detailed report in May.

The pressure to cut interest rates was given even further weight Tuesday with the release of figures showing unemployment in the eurozone rising to another record of 12.1 percent in March from the previous month's 12 percent.

With 19.2 million people out of work in the eurozone, up 62,000 during the month, policymakers have a huge task ahead of them to turn the region's economy around and keep their long-suffering people on board as they suffer the effects of austerity measures designed to get public finances into shape.

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