Euro zone inflation stuck in 'danger zone', keeps pressure on ECB

Credit: Reuters/Yorgos Karahalis

A man makes his way past a replica of a one drachma coin outside the Athens Town Hall May 21, 2012.

The year-on-year inflation rate in the 18 countries sharing the euro was 0.5 percent in March against 0.7 percent in February, the European Union's statistics office Eurostat said.

The biggest rise in prices was observed for tobacco, restaurants and bars as well as milk, cheese and eggs, while lower prices were recorded for heating oil, telecommunications and fuel.

There was a stark disparity across the euro zone with countries such as Greece (-1.5 pct) and Cyprus (-0.9 pct) seeing their prices fall compared to last year.

Inflation rates in Austria (+1.4 pct), Malta (+1.4 pct) and Germany (+0.9 pct) were nearer to the ECB's target of close to but below 2 percent.

Inflation has now been in the ECB's 'danger zone' of below 1 percent for six consecutive months, fuelling speculation that the ECB will need to take further action.

ECB policy makers said the bank stood ready to deploy unconventional measures to ensure that inflation did not stay low for too long.

ECB's President Mario Draghi expressed concerns at the euro's strength on Saturday in Washington, trying to talk down the currency, which influences domestic prices.

The strength of the single currency against the dollar makes imports cheaper and pushes down the prices Europeans pay for goods and services.

While this can give households more purchasing power in the short run, the ECB wants to avoid a drop in inflation expectations.

(Reporting by Robert-Jan Bartunek and Martin Santa; editing by Philip Blenkinsop)

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