The European Commission has cut its eurozone inflation forecast after lower-than-expected price rises at the start of the year.
It expects consumer prices to rise by just 1pc over the course of 2014, well below its target of close to 2pc. As recently as November, the Commission had expected eurozone inflation to hit 1.5pc this year.
However, the report maintained that the risk of the eurozone tipping into deflation is small since the economy is showing signs of increased momentum. It predicted that inflation would pick up slightly in 2015 to 1.25pc.
“Given the gradually strengthening recovery and the increase in confidence, there is only a marginal probability of shocks large enough to de-anchor inflation expectations and initiate EU-wide deflation,” it said.
A prolonged period of low inflation, however, could still be harmful to the economic recovery, warned Olli Rehn, the EU’s top official for economic and monetary affairs.
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