- Howard Archer, chief economist at IHS Economics
Inflation has been a key topic for speculation during the last several months, as European policymakers constantly warned about weak inflationary pressure and an existing risk of deflation. Therefore, it was very surprising that markets remained little changed after February's revised CPI data, with EUR/USD losing only 0.12% and falling to 1.3888.
A monthly report from the Eurostat showed consumer prices climbed just 0.7% on a annual pace last month, down from January's reading of 0.8% and moving further away from the ECB's official target of 2%. The consensus forecast stood for no change. With inflation below 1% for five months, Mario Draghi will be under stronger pressure to defend the 18-nation bloc from falling inflation. On a monthly basis, CPI showed mild improvement from prior month coming in at 0.3%, following a 1.1% decline, however, missing market's expectations for a 0.4% gain. The revisions of the annual CPI brings inflation to the lowest since November 2009 and October's 2013 level, after which the ECB lowered its key refinancing rate to a fresh low.
The ECB claimed its readiness to act if needed, and according to analysts, the next move will be aimed at adding liquidity. The central bank can stop sterilizing the money it spend purchasing sovereign bonds or launch its LTRO programme.
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