Euro-Area Inflation Slows as Core Gauge Reaches 11-Month Low

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Inflation in the euro area unexpectedly slowed in March and a core measure of prices fell to the lowest in almost a year, underscoring the case for more European Central Bank stimulus.

The report, showing a headline rate of 1.4 percent and a gauge stripping out volatile components at 0.8 percent, puts the ECB further away from reaching its inflation goal. Policy makers have expressed confidence that price pressures will eventually pick up, with President Mario Draghi insisting last week that progress “has been delayed rather than derailed.”

Inflation in the region remains weak despite a continuous improvement in the labor market. Unemployment in the euro-area stayed at 7.8 percent in February, the lowest in more than a decade.

The slow pass-through from employment and wage gains has been compounded by a global manufacturing shock and a general weakening in demand.

What Bloomberg's Economists Say

“The ECB remains cautious about the possible effect of the current economic slowdown on inflation after reducing its inflation forecasts earlier this month. We think the impact should be small with pay pressure and the pass-through to prices continuing to build.”

--Maeva Cousin, euro-area economist
Click here to read the note.

While sentiment at factories in Asia improved in March, producers in Germany experienced the worst contraction since the sovereign debt crisis. Economic confidence in the euro area has also extended its decline, even as sentiment in the services sector remained relatively robust.

ECB officials have started floating ideas for how they can maintain their ultra-accommodative policy stance for longer and provide more stimulus, with details of a new lending program expected to be announced in June.

--With assistance from Catarina Saraiva, Harumi Ichikura and Kristian Siedenburg.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow, Craig Stirling

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