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The Eurozone’s inflation has dropped to its lowest level in two years prompting the President of the European Central Bank (ECB), Mario Draghi, to call for the continuation of “necessary” fiscal stimulus measures.
Data released by Eurostat on 1 April suggests that core inflation – which does not take into account energy and food price fluctuations – in the Eurozone stands at 0.8% in March. Headline inflation also fell from 1.5% in February to 1.4% in March.
Both headline and core inflation is at its lowest level since March 2017, which combined with falling manufacturing orders, suggest that the Eurozone’s economic recovery is backtracking. The labour market of Germany, France, and Spain remains robust, although Italian unemployment has reversed course and is surging.
The ECB’s inflation target is 2%, an objective that has been elusive for nearly a decade.
The biggest economy in the Eurozone, Germany, has seen a sharp slowdown in manufacturing, as the IHS Markit Purchasing Managers index hit 47.5. Anything below 50 suggests contraction and this is the lowest level in six years. French and Italian manufacturing orders are also below the minimum benchmark.
Incoming data will be assessed by the ECB’s governing council on 3 April, although no major policy announcement is expected. Draghi told the press on 1 April that substantial monetary policy stimulus remains essential to ensure the continued build-up of domestic price pressures over the medium term.