Eurozone inflation slows as energy prices fall
By Sean Farrell
Date: Tuesday 31 Mar 2020
(Sharecast News) - Inflation in the eurozone slowed more than expected in March as the plunging oil price caused energy costs to fall, official figures showed.
Prices rose by an annual rate of 0.7% in the single currency area, down from 1.2% in February, according to an initial estimate from Eurostat.
Economists had on average expected inflation to fall to 0.8% in March. The rate was the lowest since October 2019 with prices set for a further squeeze.
Energy prices led the inflation rate down, falling at an annual rate of 4.3% compared with just 0.3% in February. This sharp fall was offset by food, alcohol and tobacco prices rising 2.4% compared with 2.1% in February.
Services prices rose 1.3%, down from a rate of 1.6% in February, and the cost of non-energy industrial goods increased at an unchanged rate of 0.5%.
The figures showed the impact of the coronavirus crisis as the disease's economic impact spread and governments responded with restrictions on movement.
The fall in energy costs reflects the more than halving of the oil price after Saudi Arabia responded to plunging demand by cutting prices. Grocery prices were supported as households stocked up on goods to see them through periods of isolation after governments called on people to stay in their homes.
"The massive drop in oil prices in recent weeks was the obvious culprit causing the largest drop in consumer energy prices since August 2016," Oliver Rakau, chief German economist at Oxford Economics, said. He said further energy price declines were in the pipeline with the potential to "amplify adverse effects" on wages and inflation as a eurozone recession looms.
"The coronavirus and governments' containment measures could wreak havoc with European inflation statistics in the coming months as large swaths of the economy are being shut down," Rakau said. The European Central Bank will do everything it can to support the economy and limit the medium-term impact on inflation, he added.
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