BRUSSELS (Reuters) - - Inflation pressures in the euro zone eased slightly in April from March but were still above expectations, giving the European Central Bank little room to lower interest rates to help revive economic growth across the continent.
Consumer price inflation in the 17 nations sharing the euro moderated to 2.6 percent year-on-year in April from 2.7 percent in March, the EU's statistics office Eurostat said on Monday. Economists polled by Reuters had forecast inflation of 2.5 percent.
ECONOMISTS' COMMENTS
PETER VANDEN HOUTE, ING
"Some of the decline is probably due to oil prices, on the back of a more favorable year-on-year comparison (in April 2011, the Arab Spring had caused a strong increase in crude prices). As industrial production prices for consumer food have started to decline, thanks to the sharp fall in EU food commodity prices, the upward impact from food on inflation should be petering out in the coming months.
"With final demand remaining sub-par, it looks as if pricing power amongst European companies is weakening again. Price expectations in both manufacturing and services have softened in April according to the European Commission Business and Consumer Survey. The annual growth of non-food producer prices has started to ease from historically high levels at the end of the 2011, signaling less short-term pipeline pressures for consumer price inflation.
"And while money growth accelerated to 3.2 percent year-on-year in March, this can be largely attributed to precautionary savings by households.
"The likelihood of inflation falling below 2 percent in the short run remains low, putting the ECB in a difficult situation.
"As the German members of the ECB's Governing Council have already been warning for inflationary pressures potentially building up, a further rate cut seems out of the question, although we believe that rates will remain at the current low level at least until the end of 2013 and perhaps even longer.
"With the Securities Market Programme having become less effective, there is still a genuine possibility of a new LTRO (long-term refinancing operation), should tensions on the bond markets increase further.
"But for the time being the ECB is mainly eying European politicians to come up with new solutions to ease the tensions within the euro zone. It is no coincidence that Mario Draghi uttered the words 'growth compact' in his allocation to the European Parliament last week."
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