Euro zone inflation continues to ease

Inflationary pressures eased further in March in the 17 countries using the euro, spurred by a continued downward trend in energy prices, data from the EU statistics agency showed today.

Annual euro zone inflation fell to 1.7 per cent in March, its lowest level since August 2010, Eurostat said, compared with the European Central Bank's target of close to but not above 2 per cent.

The figure was in line with the average expectations of 41 economists polled by Reuters, and confirmed Eurostat's flash inflation estimate made earlier this month.

Easing inflation and the weak economy could provide added impetus for European central bankers to consider lowering rates when they meet on May 2nd, with some economists citing the bloc's rigid inflation target as hampering a return to economic expansion after three years of debt crisis.

ECB policymakers have recently been dropping hints that easing price pressures could prompt them to ease monetary policy further.

"We expect the ECB to cut interest rates from 0.75 per cent to 0.50 per cent by mid-2013, and consider a move as soon as May as highly possible," said economist Howard Archer of IHS Global Insight.

"Not only did further euro zone GDP contraction highly likely occur in the first quarter, but prospects for the second quarter hardly look bright at the moment."

The last time the ECB reduced its main refinancing rate was July 2012, when rates were cut to the current 0.75 per cent level. Already in recession in 2012, the euro zone economy is expected to shrink again this year as households and businesses struggle with the fallout of the bloc's public debt crisis and government spending cuts.

"If the data continues to disappoint, implying another slip back in Q2, and the slight improvement that we are seeing from Q4 is not at play anymore, the ECB could play its last conventional bullet on cutting rates," Barclays'Francois Cabau said.

In Britain, sharp rises in car insurance premiums piled further pressure on household budgets last month as inflation remained at its highest level since last May.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI)

inflation stayed at 2.8 per cent in March after a 5.8 per cent increase in the cost of transport insurance offset slower rises in diesel and petrol prices.

While inflation remained unchanged on February, there are fears over a summer of financial pain for consumers ahead as economists predict CPI to hit 3.5 per cent over the next few months.