Euro zone inflation continues to ease in March

BRUSSELS (REUTERS) - Inflationary pressures eased further in March in the 17 countries using the euro, spurred by a continued downward trend in energy prices, data from the European Union statistics agency showed on Tuesday.

Annual euro zone inflation fell to 1.7 per cent in March, its lowest level since August 2010, Eurostat said, compared with the European Central Bank's target of close to but not above 2 per cent.

The figure was in line with the average expectations of 41 economists polled by Reuters, and confirmed Eurostat's flash inflation estimate made earlier this month.

Easing inflation and the weak economy could provide added impetus for European central bankers to consider lowering rates when they meet on May 2, with some economists citing the bloc's rigid inflation target as hampering a return to economic expansion after three years of debt crisis.

European Central Bank (ECB) policymakers have recently been dropping hints that easing price pressures could prompt them to ease monetary policy further.

"We expect the ECB to cut interest rates from 0.75 per cent to 0.50 per cent by mid-2013, and consider a move as soon as May as highly possible," said economist Howard Archer of IHS Global Insight.

"Not only did further euro zone GDP contraction highly likely occur in the first quarter, but prospects for the second quarter hardly look bright at the moment."

The last time the ECB reduced its main refinancing rate was July 2012, when rates were cut to the current 0.75 percent level.

Already in recession in 2012, the euro zone economy is expected to shrink again this year as households and businesses struggle with the fallout of the bloc's public debt crisis and government spending cuts.

"If the data continues to disappoint, implying another slip back in Q2, and the slight improvement that we are seeing from Q4 is not at play anymore, the ECB could play its last conventional bullet on cutting rates," Barclays' Mr Francois Cabau said.

Economists polled by Reuters expect the euro zone economy to contract by 0.4 per cent this year, with 19 out of 25 economists saying they expect the ECB to announce more measures to tackle the downturn.

March's annual inflation figure was down significantly compared with the same month a year ago, when it was 2.7 percent.

The rate of annual inflation in March rose compared to the previous month in only one euro zone country, Portugal.

The rate held steady in Finland, Germany, and the Netherlands and eased in the currency bloc's other members.

Greece posted a slight fall in prices in March, with an annual inflation rate of -0.2 per cent.