Euro zone inflation remained subdued in January, final data showed, cementing expectations the European Central Bank will keep interest rates on hold for months to come as economic recovery remains fragile.
The European Union statistics office confirmed its earlier estimate that consumer prices in the 16-country currency region rose 1.0 per cent year-on-year, up from 0.9 per cent in December.
Month-on-month inflation was -0.8 per cent in January, the data showed today, in line with the expectations of analysts polled by Reuters. Prices fell for clothing, household equipment, communications, culture, hotels and restaurants.
"Underlying inflation across the euro zone seems likely to be held down by large output gaps across the region following deep recession, only gradual recovery, muted capacity utilisation, and high and still rising unemployment," said Howerd Archer, chief European economist at Global Insight.
Energy prices, which had long been falling and pushing inflation down, rose in January by 2.1 per cent month-on-month for a 4.0 per cent annual gain.
The data strengthened expectations that the ECB will keep its main interest rate at a record low of 1 per cent until late 2010 or even 2011.
Economists say inflation in the euro zone could hover around 1 per cent this year, with rising energy and food prices pushing it up and declining core inflation pressing it down.
What the ECB calls core inflation - stripping out volatile unprocessed food and energy prices - fell to 0.9 per cent year-on-year from 1.0 per cent in December, which can only partly be explained by the sales season in January.
"There is really no underlying inflationary pressure at all so we are very far from the official ECB target. The ECB is likely to keep rates unchanged for most of the year," said Carsten Brzeski, analyst at ING.
The ECB wants to keep consumer prices growing slightly below 2 per cent annually over the medium term.
Reuters