Euro zone inflation slows more than expected in February on cheaper food

BRUSSELS (Reuters) – Euro zone consumer prices grew less than expected in February because of a fall in unprocessed food prices and reduced energy inflation, data from the European Union’s statistics office Eurostat showed on Friday.

Inflation in the 19 countries sharing the euro was 0.2 percent month-on-month and 1.1 percent year-on-year. Economists polled by Reuters had expected that monthly increase, but forecast a 1.2 percent annual rise, in line with Eurostat’s own earlier estimate.

Unprocessed food prices fell 0.3 percent month-on-month in February for a 0.9 percent year-on-year decline, which subtracted 0.07 points from the overall final annual figure.

Energy prices also fell 0.3 percent on the month for a 2.1 percent year-on-year rise, slowing from 2.2 percent in January.

Without these two most volatile components, a measure the European Central Bank calls core inflation, prices rose 0.3 percent on the month and 1.2 percent year-on-year, the same annual rate as in January.

Some economists look at an inflation measure that excludes even more volatile components, like alcohol and tobacco prices which are often subject to government changes in excise tax.

This measure of inflation showed prices rising 0.4 percent month-on-month and 1.0 percent year-on-year, also unchanged from the January rate.

The ECB wants to keep headline inflation below, but close to 2 percent year-on-year over the medium-term and has been buying tens of billions of euro zone government bonds on the secondary market to pump cash into the banking system and provoke bigger credit action that would boost economic growth and inflation.

ECB President Mario Draghi has said that core inflation has yet to show “convincing signs of a sustained upward trend” because of slack in the labor market and the economy.

Data on labor costs in the fourth quarter of 2017 released separately by Eurostat confirmed that analysis: the growth of labor costs eased for a second consecutive quarter to 1.5 percent in Oct-Dec 2017, although wage costs rose 1.7 percent, from 1.6 percent in the third quarter.

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