18 March 2014 13:35

Cyprus saw the second biggest drop in annual prices across Europe and had registered one of the lowest average rates of inflation, Eurostat data showed yesterday.
In February, negative annual rates were observed in Bulgaria (-2.1%), Cyprus (-1.3%), Greece (-0.9%), Croatia (-0.2%), Portugal and Slovakia (both -0.1%).
The highest annual rates were recorded in Malta and Finland (both 1.6%) and Austria (1.5%).
Compared with January, annual inflation fell in seventeen Member States, remained stable in three and rose in seven.
The lowest 12 month average rates up to February were registered in Greece (-1.1%), Bulgaria (-0.3%) and Cyprus (-0.2%).
And the highest were in Estonia (2.8%), Romania (2.6%), the Netherlands and Finland (both 2.1%).
The largest upward impacts to euro area annual inflation came from tobacco (+0.08 percentage points), restaurants & cafés and electricity (+0.06 each), while fuels for transport (-0.30), telecommunications (-0.10) and heating oil (-0.07) had the biggest downward impacts.
Inflation across the 18-country eurozone has been revised down to its lowest level since October, a development that may ratchet up the pressure on the European Central Bank to cut interest rates further.
Consumer prices were 0.7% higher in February than the year before. That's lower than the 0.8% initial estimate and took the annual rate down to the level it was in October.
The rate is also way below the level the ECB targets — it sets its policy to keep inflation just below 2%.
The unexpected drop in the inflation rate is likely to reinforce concerns in the markets that the eurozone may suffer a bout of deflation, or falling prices.
Deflation can weigh on an economy in a variety of ways, mainly by encouraging consumers to delay purchases in the hope of cheaper bargains further down the line.
Eurostat figures showed that four of the 18 European Union countries that use the euro as their currency — Greece, Cyprus, Portugal and Slovakia — are currently experiencing a fall in prices.
A spokeswoman for the statistics agency said the main reason for the revision was lower data from Germany, which has an annual inflation rate of 1%.
At a press briefing this month following the ECB's decision to keep its main interest rate unchanged at the record low of 0.25%, bank President Mario Draghi was cautiously optimistic about the outlook for the economy, adding he did not expect broad-based deflation.
Even so, he said the bank is assessing what it can do in the event the recovery stalls or prices do start falling.
Options that have been mooted include a further reduction in the main interest rate, possibly to 0.10%, and cutting the deposit rate to below zero, which would encourage banks to lend rather than park their cash at the Central Bank.


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