The specter of deflation recedes into the euro area – Boursorama

After a long decline in 4 months prices, the euro area is officially out of deflation in April. Good news for the ECB, but several factors – including unemployment. – Could leave the prices down

For the first time since November, prices have not fallen in the euro area (illustration). (AFP / File /)

According to a first estimate of Eurostat, inflation was zero in April (0.0%) in the euro area. She had gone into negative territory in December (-0.2%), had pronounced in January (-0.6%) before returning to 0.3% in February and -0.1% in March. This is good news for the ECB to counter deflation risks, marked by a sustained fall in prices and wages that weighs on the economic recovery it began in early March a large quantitative easing program, or “QE”, which provides for the acquisition of more than 1,000 billion euros of public and private debt securities by September 2016.

In a report released Thursday, the Frankfurt institution emphasizes satisfaction that “inflation expectations in the long term eurozone occasions” and considers that this may be considered a first success of his action. The medium-term objective of the Central Bank is to maintain inflation close to, but below 2%.

“We are still far away,” said Christian Schulz, an economist at Berenberg, who price stability observed in April “does not yet constitute a sign of easing of deflationary pressures, as we recall the unemployment data for March, reflecting a desperately slow decline.” The unemployment rate in the euro zone is in effect unchanged in March, at 11.3%, although the number of unemployed dropped by 36,000 compared to February. It is “the most modest decline since November,” said Howard Archer of IHS Global Insight. Christian Schulz noted for his part that “at this rate, it would take 14 years to return to the level before the crisis”

But unemployment and inflation are linked. High unemployment encourages employers to maintain the pressure on wages and, more generally, is synonymous with limited purchasing power for households. Which in turn weighs on consumption and prices. At current rates, the fall in unemployment is “much too slow to weigh on earnings in the foreseeable future,” summarizes Jonathan Loynes, of Capital Economics

Another sign bleak. Underlying inflation which does not take into account the most volatile prices such as energy and food, is “stable at the low 0.6%.” The services sector in particular, with inflation at 0.9%, reached a “historic low” notes the analyst. “In short, it is a relief that the deflationary episode was shorter than was feared. But she could return if prices of oil and raw materials leave down,” conclut- it.

The ECB must not relax its efforts, so say economists. “The main message from the ECB for now is that it does not intend to end prematurely to its quantitative easing program activity despite signs of improvement,” according to Howard Archer, which provides for accelerated growth to 0.5% in the first quarter against 0.3% in the fourth quarter 2014.

The President of the ECB, Mario Draghi, is exposed to “questions more and more on the need or not to continue the program of quantitative easing in the second half, “anticipates Teunis Brosens, ING. But the central bank, scalded by several unsuccessful attempts in recent years “should be cautious” before considering to reduce the liquidity tap, he predicted.