Euro zone exits deflation - just

By Reuters

Apr 30, 2015 06:45 AM EDT

The euro zone ended four months of deflation in April with consumer prices unchanged from year-ago levels, removing the threat of persistent price declines as energy costs pushed up in the month.

Consumer prices in the 19 countries that share the euro were flat in April from a year earlier after a 0.1 percent decline in March, the European Union's statistics office Eurostat estimated.

The bottoming out of price declines is likely to be welcome news for the European Central Bank, which wants to keep inflation below, but close to 2 percent over the medium term. It started printing money in March to inject more cash into the economy and ward off concerns of persistently falling prices, or deflation.

Economists have said inflation should become positive in the second half of 2015 as energy becomes less of a drag given that oil prices started falling sharply from June last year.

Indeed some are already questioning whether the ECB will need to carry out quantitative easing all the way through to September 2016.

Ralph Solveen, economist at Commerzbank, said it was too early to say whether the ECB's quantitative easing (QE) was already having an impact.

"Whether it's the positive things such as the better economic data we've had recently or low inflation. QE can't work that fast," he said.

As in previous months, the weakness of prices was mainly driven by the declining cost of energy, which was 5.8 percent cheaper in April than a year earlier, although oil prices rose some 15 percent in euro terms during the month.

Core inflation, which excludes volatile energy and unprocessed food costs, was unchanged at 0.6 percent year-on-year.

ING euro zone economist Teunis Brosens said the lack of a deflationary trend there was good news, but noted that services inflation fell to 0.9 percent, an all-time low.

"It means we can't close the book on deflationary pressures right yet," he said, adding it was sufficient cause for the ECB to err on the side of caution.

Eurostat's flash estimate for the month does not include a monthly calculation.

In another slightly positive sign for the euro zone economy, Eurostat said euro zone unemployment fell marginally in March by 36,000 to 18.105 million people.

However, this was not enough to change the unemployment rate from the 11.3 percent of February. Economists had been expecting the rate to drop to a new three-year low of 11.2 percent.

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