Eurozone inflation remained in negative territory in March, according to the latest data, putting further pressure on the European Central Bank (ECB) to act. The final estimate for March confirmed a negative inflation rate of -0.1%, unchanged from the flash estimate.

This persistent low inflation, and at times deflation, continues to be a major concern for the ECB, which has a mandate to maintain price stability, defined as inflation close to, but below, 2% over the medium term.

The negative inflation rate is primarily driven by falling energy prices, but there are also concerns about weak underlying price pressures in the Eurozone economy. The ECB has already implemented a range of measures to try to boost inflation, including:

• Negative interest rates on commercial banks’ deposits held at the ECB
• A large-scale asset purchase program (quantitative easing)
• Targeted longer-term refinancing operations (TLTROs)

However, these measures have so far failed to sustainably lift inflation back to the ECB’s target. As a result, there is growing speculation that the ECB may need to take further action, such as increasing the size or duration of its asset purchase program, or cutting interest rates further.

The ECB’s Governing Council will meet next to discuss monetary policy. The latest inflation data will undoubtedly be a key factor in their deliberations.

Potential Consequences

Prolonged negative inflation can have several negative consequences for the Eurozone economy:

• Delayed spending: Consumers may delay purchases if they expect prices to fall further.
• Increased debt burden: Deflation increases the real value of debt, making it more difficult for borrowers to repay.
• Wage stagnation: Companies may be reluctant to raise wages in a deflationary environment.

The ECB is therefore keen to avoid a prolonged period of deflation and is prepared to take further action if necessary to achieve its inflation target.