ECB ‘alarm bells ring’ at inflation fall

An unexpected drop in eurozone inflation raises pressure on the ECB to consider fresh policy action next week to counter deflation risks and support a weak recovery that may be running out of steam.

Inflation slowed this month to 0.7% from 0.8% in December, confounding market expectations for a rise to 0.9% and matching a low hit last October. The ECB responded then by cutting its interest rates to record lows.

The latest weakening of price pressures took the inflation rate further below the ECB’s target of just under 2% and will fan investor concerns that deflation may be gripping the 18-member bloc as it starts to exit a sovereign debt crisis.