Eurozone inflation lower as economy slows | Business| Economy and finance news from a German perspective | DW | 29.02.2012
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Eurozone inflation lower as economy slows

Upward pressure on prices in the eurozone eased in January as most economies in the 17-nation currency area were slowing down substantially. But inflation is still way too high to meet European Central Bank targets.

The inflation rate in the eurozone reached 2.6 percent in January. That was a notch lower than the 2.7 percent recorded in the previous month, according to data released by the European Union's statistics office Eurostat Wednesday.

Eurostat said the inflation rate defied rises of 4.4 percent in transport costs and 4.5 percent for heating fuel; these were the developments which "had the largest upward impacts" on prices.

Falling prices in January were recorded in costs for telecommunications, clothing and vegetables.

Eurostat had previously estimated that the eurozone price increase would hold steady. Nevertheless, even the lower figure means that inflation in the 17-nation currency area exceeds the European Central Bank's target of a maximum 2 percent annual inflation.

Slump versus cash injection

The European Central Bank (ECB) said it expected inflationary pressures to ease throughout 2012, as a result of a perceptible cooling in the eurozone economy.

However, some ECB policymakers are worried that the central bank risks creating inflation by releasing a wave of cash through its controversial funding operations.

On Wednesday, debt-stricken eurozone banks received another 500 billion euros ($673 billion) in ultra-cheap, 3-year loans to add to a first ECB credit operation of the same size in December.

Jens Weidmann, chief of the German Bundesbank, told Reuters news agency that a "too generous" supply of liquidity could create risky incentives for banks, which could in turn "store up future inflation risks."

In Germany, consumer prices were on a rising trend, at an annual rate of 2.3 percent in February following 2.1 percent in January.

uh/mll (Reuters, AFP, dpa)