Inflation in the euro zone tumbled in February while economic sentiment stabilised, data showed today, as calls grow for the European Central Bank to cut rates next week to ensure the recovery remains on track.
The European Union's statistics agency estimated that inflation in the 12-nation zone slid to an annual rate of 1.6 per cent in February from January, which was revised down to 1.9 per cent from a previous estimate of two per cent.
The ECB's target is to keep euro zone inflation below, but close to, two per cent.
The overall index for economic sentiment in the euro zone remained steady at 96.0 in February, exactly in line with the expectations of economists, as an improvement in the mood of consumers was balanced by a worsening of sentiment among retailers and builders, the European Commission said.
Confidence in industry, however, remained steady in February from January at minus six, a three-year high.
The mixed picture of economic sentiment mirrors other key euro zone data this week, such as the influential German Ifo survey, which showed a decline in business sentiment for the first time in 10 months, indicating weak momentum in the economic recovery.
French Prime Minister Mr Jean-Pierre Raffarin and German Chancellor Mr Gerhard Schroeder have both this week called on the ECB to cut rates to fight a rising euro, which helps keep inflation in check.
On a monthly basis in January, prices fell 0.2 per cent.
But ECB council member Mr Nicholas Garganas, in an interview with the Financial Times today, played down the need for a further cut from already historically low levels of 2.0 per cent.
The inflation figures came in slightly below expectations.