According to a report from the Wall Street Journal,"the European Union's statistics agency said Friday consumer prices rose by just 0.7% in the 12 months to January, down from an 0.8% annual rate of inflation in December, and further below the ECB's target of just under 2.0%''.
The ECB last cut its benchmark interest rate in November, responding to a fall in the annual rate of inflation from 1.1% to 0.7% in October.
The drop in the inflation rate as 2014 began will fuel fears that low inflation will hinder the currency area's recovery from its long debt and banking crises, and increases the risk that it may slide into deflation, when prices fall.
An extended period of falling prices would be highly damaging for the euro zone, as governments and households are already struggling to reduce their elevated levels of debt. When prices fall, the effective debt burden rises.
"The slight drop in inflation this month further proves it is too early for complacency regarding the risks of deflation in the region, providing a continued headache for the ECB ahead of the next meeting on Thursday, with markets eager to see a positive response from the Governing Council," said Tom Rogers, an economist at Ernst & Young.
