EU consumer prices fall less than expected, unemployment drops for 3rd month

(Reuters) – Euro zone consumer prices fell by less than expected in February while unemployment eased in January for the third month in a row, offering signs that the risks of economic stagnation and deflation in the bloc are falling.

The European Union’s statistics office Eurostat estimated on Monday that consumer prices in the 19 countries sharing the euro fell 0.3 percent year-on-year in February after a 0.6 percent annual drop in the previous month. Economists polled by Reuters had expected a 0.4 percent price decline.

“A double dose of good news for the euro zone. This may dilute fears that pervasive deflation could become entrenched in the euro zone with long-term debilitating growth effects,” said Howard Archer, economist at His Global Insight.

“The further drop in unemployment should be supportive to euro zone consumers and they are benefiting from the boost to their purchasing power coming from deflation.”

Unemployment, usually the last indicator to react to better economic conditions, fell for the third month in a row to 11.2 percent in January from 11.3 percent in December.

Eurostat said that much cheaper energy, prices for which were 7.9 percent lower in February than a year earlier, and a 0.2 percent decline in prices of non-energy industrial goods were the main factors pulling down the overall inflation index.

Without the volatile energy and unprocessed food components, a measure the European Central Bank calls core inflation, prices grew 0.6 percent year-on-year, the same as in January.