Europe is back in deflation

deflate deflation bear
deflate deflation bear

AP Photo/Nam Y. Huh

Eurozone inflation fell in February, with prices shrinking 0.2% year-on-year, meeting the forecasts of economists, according to the latest data released by Eurostat.

That number means that prices are still falling, and are a very long way from the European Central Bank's 2% target.

Consumer price inflation in the euro area fell from 0.3% in January, into negative territory.

On a month-to-month basis, prices rose by 0.2% beating the expectation of 0.1% growth.

Year-on-year core consumer prices also beat forecasts by economists of 0.7%, hitting 0.8%.

Core prices are an important measure because they strip out the most volatile items — things like fuel and food prices which are subject to massive variations. 

The eurozone has been flirting with price deflation for the past year or so, largely hovering just above zero since early 2015. Here's how inflation in the eurozone looks over the last few years:

Eurozone inflation 2007-2016
Eurozone inflation 2007-2016

AP Photo/Nam Y. Huh

A large part of the eurozone's extremely low inflation right now is down to the slump in the price of oil over the last year — but the core figure shows that other prices aren't rising by as much as the ECB would like, either.

The CPI figures come exactly a week after the European Central Bank and its president Mario Draghi announced a series of new monetary policy measures, including cutting all its base rates, and extending its programme of bond buying.

The measures are designed to try and boost stalling inflation, as well as growth, within the Eurozone. So far the ECB's negative interest rate policy (NIRP) has failed to serve its purpose effectively, and today's fall in CPI won't exactly fill Draghi and the rest of the ECB with confidence.

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