By Anna McLauchlin - 27th February 2004
Inflation is falling in euro-economies to levels well below target rates, increasing pressure on Europe's central bankers to cut interest rates next week.
Data from Eurostat, the European Commission's statistics office, shows eurozone inflation dropped to 1.9 per cent in January 2004.
And for February, it is expected to fall to 1.6 per cent, a long way under European Central Bank aspired levels of 'close to' two per cent.
At the same time, the euro area business climate indicator decreased slightly between January and February to 0.01, driven by lowered production as well as order books and stocks.
The figures could fuel expectations of a rate cut when the European Central Bank governing council meets to discuss monetary policy on March 4.
The euro has steadily fallen in the last week on speculation of a cut, particularly after German chancellor Gerhard Schroeder announced he will raise the issue of the strong euro at a meeting with George W. Bush in Washington on Friday.
At midday on Friday the single currency was trading at $1.2444 after an all-time high of $1.2929.
But ECB governing council member Nicholas Garganas on Thursday played down the possibility of a rate cut, saying monetary policy is appropriate and that worries over the strong euro have "attracted too much concern."
And some analysts are not convinced the ECB will bow to pressure to cut rates.
"The ECB doesn't usually respond to political pressure alone", said a Belgian analyst, "and a rate cut when liquidity is this high could create a hazardous situation in the long term."
And Belgian bank Fortis said while it was not clear what had lead to the lower inflation figures, it does not expect a rate cut in the coming months.
The ECB governing body meets next Thursday for its monthly meeting on monetary policy, including an updated assessment on interest rates.
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