Eurozone deflation eases, unemployment at 3-year low

Official figures Tuesday raised hopes that the current bout of deflation across the region could be over much sooner than anticipated while unemployment has fallen to a near three-year low the latest in a string of indicators to suggest that the eurozone recovery has pushed up a gear in the wake of lower oil prices and a falling euro.

Eurostat said consumer prices across the single-currency zone fell by only 0.1 percent in the year to March following a 0.3 percent fall the previous month. The modest decline was in line with market expectations and follows an apparent easing in the downward pressure emanating from energy costs. In recent weeks, there have been growing signs that the slide in oil prices, which took root last summer, has come to an end.

Eurozone inflation rates have been negative since last December, a headache that prompted the European Central Bank earlier this year to launch a 1.1 trillion-euro ($1.2 trillion) government bond-buying program on the lines of that pursued by the U.S. Federal Reserve for many years.

The hope behind the stimulus, which is set to last til September next year, is to shore up the economic recovery and get inflation back into the system the ECB looks to achieve inflation of just below 2 percent.

Negative inflation rates since December stoked fears that the eurozone would suffer a debilitating bout of deflation, where sustained falls in prices weigh on economic activity, as in Japan in the recent past. Falling prices over a long period of time can prompt consumers to delay spending in hopes of bargains down the line and make businesses reluctant to invest and innovate.

Sometimes, falling prices can be a boon. The recent run of upbeat economic data coming from many parts of the eurozone has been largely credited to the impact of lower fuel costs the 20 euros saved filling up a car can be spent elsewhere. Lower oil prices aren't the only reason why there is increasing optimism around the eurozone's economic outlook. The recent sharp fall in the value of the euro to near decade lows against the dollar has also been credited for the improving underlying picture a lower currency can boost growth by making exports cheaper and can raise inflation by making imports more expensive. On Tuesday, the euro was down another 0.9 percent at $1.0722 as traders price in the prospect of higher U.S. borrowing rates soon.

Though the impact of the euro's fall and the ECB's stimulus should help to prop up inflation over coming months, few economists think it will be any pick-up will be substantial partly because of rigid labor markets in many parts of the eurozone. After all, Eurostat said the core rate, which excludes volatile items such as energy, food and tobacco, slipped to 0.6 percent in the year to March from 0.7 percent the previous month.

"All this shouldn't detract from today's 'good news' that we are now on the crux of pulling out of a negative spiral, but it should lead to no illusions either over the persistent dangers that surround a protracted low-inflation environment," said Timo del Carpio, European economist at RBC Capital.

One of the main offshoots of potentially higher economic growth rates in the eurozone is lower unemployment. Separate Eurostat figures Tuesday showed the jobless rate in the eurozone down at 11.3 percent in February from 11.4 percent the previous month. February's rate was the lowest since May 2012 but is still way higher than the 5.5 percent in the U.S. The agency said the number of people unemployed decreased by 49,000 in the eurozone to 18.2 million. The overall figures mask big disparities across the region. While Germany, Europe's economy, has a low unemployment rate of 4.8 percent, others like Greece and Spain are still hobbled by sky-high rates around the 25 percent mark. Spain, which is emerging strongly from a double-dip recession, is showing real signs of improvement though. The number of unemployed in the country fell by 54,000 in February, reducing the jobless rate to 23.2 percent.