Eurozone inflation steady at 2.7 percent

AP News
Posted: Feb 01, 2012 5:59 AM
Eurozone inflation steady at 2.7 percent

Inflation in the 17 countries that use the euro was unchanged in the year to January at 2.7 percent, official figures showed Wednesday, reinforcing market expectations that the European Central Bank will decide to keep interest rates unchanged at its next policy meeting.

The first estimate for the month from Eurostat, the EU's statistics office, was in line with forecasts and the euro was little changed around the $1.3125 mark.

Inflation has been running above the European Central Bank's target of "just below 2 percent" since December 2010.

Even so, the eurozone's central bank cut its main benchmark rate in November and December to a record low of 1 percent as it tries to shore up the foundering eurozone economy.

Further interest rate reductions from the bank, which is led by Mario Draghi, are widely anticipated, especially if inflation falls back further as last year's energy and food price rises drop out of the annual comparison.

The bank announces its latest interest rate decision on Feb. 9 and the markets are pricing in a second straight month of no change.

One reason inflation is expected to moderate further toward target is the state of the eurozone economy. Many economists think the 17-nation bloc will slide back into recession this year despite some relatively optimistic signals in a raft of manufacturing surveys Wednesday. And with unemployment over 10 percent, the pressure coming from wage demands is likely to remain modest.

"The region is still in a precarious position and is unlikely to avoid falling back into another recession this year," said Ben May, European economist at Capital Economics.