Eurozone inflation holds steady at low rate of 0.2%

In December, the European Central Bank predicted euro-area inflation would accelerate to 1.6 percent in 2017 from 0.1 percent past year. That compares with a median estimate for a 0.3 percent increase, according to a Bloomberg survey of economists. “It’s a major disappointment”, said Jane Foley, a forex strategist at Rabobank.

“We still think that the ECB was too timid in December and see it being forced to up the pace of its asset purchases before too long, perhaps in the second quarter”, said Jennifer McKeown, senior European economist at Capital Economics.

Opponents of policy easing had relied on relatively strong readings of core inflation, which excludes volatile energy and food prices, in arguing that weak price growth was mostly an effect of the big oil price fall.

The euro was little changed after the report and traded at $1.0773 at 11:04 a.m. Frankfurt time.

The data from the EU’s Eurostat statistics agency came in below analysts’ forecast of 0.3 percent inflation for the period, which is much lower than the ECB’s official two percent target.

The annual rate of inflation has been below the ECB’s target since March 2013, and below 0.5% since July 2014.

Low inflation is the main reason why the European Central Bank has embarked on a series of stimulus measures over the past year.

Final euro area December PMIs will also be released this week, including manufacturing (Monday; consensus: 53.1; flash: 53.1; last: 52.8), services (Wednesday; consensus: 53.9; flash 53.9; last: 54.2) and the composite (Wednesday; consensus: 54.0; flash: 54.0; last: 54.2). Energy costs decreased an annual 5.9 percent.