ECB President Mario Draghi was in Athens this week. Greece is one of a handful of European countries where prices are falling as companies seek to restore competitiveness.
LONDON (CNNMoney)
The ECB decided Thursday to keep its main interest rate at 0.25%, the record low level it has held since November last year.
Eurozone inflation fell to 0.5% in March, its lowest level since November 2009, fueling speculation that the ECB may act to stimulate the economy. It targets inflation of just below 2% in the medium term.
New surveys of purchasing managers suggest the region's economic recovery remains intact, with activity expanding for the ninth month in a row.
But they also reflect the intense pressure on companies to cut prices in the face of anemic growth and an unemployment rate that has barely moved from its crisis peak of 12%.
"Prices charged by manufacturers fell for the first time in seven months and charges levied for services were cut at a stronger rate, having fallen continually over the past 28 months," commented Chris Williamson, chief economist at Markit.
The International Monetary Fund, among others, continues to warn that a prolonged period of very low inflation in Europe could suppress demand and jobs, creating an obstacle to an acceleration in the global economy.
"More monetary easing, including through unconventional measures, is needed in the euro area to raise the prospects of achieving the ECB's price stability objective," IMF Managing Director Christine Lagarde said Wednesday.
A strong euro isn't helping. The currency has climbed steadily over the past 12 months and is now worth about $1.38, after touching its highest level since October 2011 last month. That's making life harder for the region's exporters and adding to downward pressure on prices by cutting the cost of imported goods.
ECB President Mario Draghi and other central bank policymakers have been sounding more dovish in recent weeks, with references to negative deposit rates -- effectively charging banks for parking excess cash with the ECB -- and Fed-style quantitative easing, or buying assets.
But their remarks have been seen as an attempt to talk down the currency -- with little effect -- rather than as preparing the way for aggressive action just yet.
First Published: April 3, 2014: 7:55 AM ET
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