Euro-area inflation returned to its lowest-ever annual pace of 0.7% in February, down from 0.8% in January and the same rate that resulted in surprise interest-rate cut by European Central Bank in November

Cindy Allen

BRUSSELS , March 17, 2014 (Thomson Reuters Corp.) – Euro zone consumer inflation returned to its lowest ever annual pace in February, revised data showed on Monday, slowing down to the same rate that triggered a surprise interest rate cut by the European Central Bank in November.

The year-on-year inflation rate in the 18 countries sharing the euro slowed to 0.7 percent in February from 0.8 percent in January, the European Union's statistics office Eurostat said.

This is a revision from the initial Eurostat estimate that inflation was 0.8 percent in February, which was also the basis for market consensus expectations.

Year-on-year price growth slowed to 0.7 percent, the lowest annual inflation reading since the creation of the euro in 1999, for the first time last October, which made the ECB cut its key interest rate to new record low of 0.25 percent in November.

Month-on-month inflation was 0.3 percent in February, driven by a 0.5 percent rise in prices of services and a 0.4 percent increase in costs of non-energy industrial goods.

Prices of food, alcohol and tobacco fell 0.1 percent on the month, while the highly volatile costs of energy inched up 0.1 percent.

ECB President Mario Draghi said last Thursday the bank has been preparing additional policy steps to guard against the possibility of deflation in the euro zone as the strong euro weighed on prices.

Draghi saw risks of deflation as "quite limited", but added that the longer inflation remained low, the higher the probability of deflationary risks emerging.

In February, there were four euro zone countries with negative annual inflation rates, Portugal and Slovakia both with -0.1 percent, Greece with -0.9 percent and Cyprus saw annual inflation rate at -1.3 percent.

The ECB, despite forecasting low inflation for years to come, left interest rates on hold this month.

Draghi rejected comparisons with Japan's experience of deflation which became so entrenched that companies and households held off on spending on expectations of lower prices ahead, leading to two decades of economic stagnation.

(Reporting by Martin Santa)

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