Eurozone Inflation To Reverse Falls In Second Half Of 2016: ECB’s Villeroy

Inflation in the eurozone will likely turn positive in the second half of the year, ECB governing council member François Villeroy de Galhau reportedly said Wednesday. The comments come just days after Eurostat, the European Commission’s statistics bureau, noted that prices fell by 0.2 percent in 12 months to February, marking the first negative inflation figure since September.

Economists had expected a flat reading, following inflation of 0.3 percent in January, but a renewed drop in crude oil prices weighed more than expected in February. ECB’s efforts to raise inflation in the 19-member bloc to “just below 2 percent” in the past year has met with mixed results so far.

However, Villeroy said: "Temporarily negative inflation is not deflation," adding that stabilization of oil prices would result in "slightly positive inflation during the second half of the year." He was speaking Wednesday before the French Parliament's Finance Commission.

Villeroy reportedly said that while domestic demand remained resilient, risks to the global economy had “indisputably increased” due to the fall in oil prices, an economic slowdown in China and other emerging markets, and uncertainty about growth in the U.S.

"It is necessary to prevent expectations about future inflation from becoming too pessimistic," Villeroy said, adding that the ECB was prepared to "to use our palette of instruments, if necessary, at the next Governing Council meeting," fuelling investor expectations of further easing by the central bank this month.

Villeroy said the ECB's governing council would be watching for signs whether low oil prices were eating into prices of other goods and services at its meeting next week, Reuters reported.