Euro zone returns to deflation in Feb

BRUSSELS (Reuters) - Euro zone annual inflation fell by more than expected and into negative territory in February, a first estimate showed, increasing pressure on the European Central Bank to ease monetary policy further next week.

The EU statistics agency Eurostat said on Monday that consumer prices in the 19 countries sharing the euro had dropped by 0.2 percent year-on-year from the 0.3 rise recorded in January. The figure is lower than forecast and is the first negative inflation figure since September, when it was -0.1 percent. Economists polled by Reuters had expected February annual inflation to be zero.

Core inflation, to which the ECB pays close attention, also fell more than expected. The figure, which excludes the volatile prices of unprocessed food and energy, declined to 0.8 percent in February. Economists had forecast 0.9 percent this month from January's 1.0 percent.

The dip in consumer prices was driven mostly by the energy sector where prices decreased by 8.0 percent in February, Eurostat estimated, much more than the -5.4 percent recorded in January. The energy price decline was the steepest since October.

Prices for food, alcohol and tobacco products went up by 0.7 percent in February, but at a slower pace than in January when they grew 1.0 percent. The deceleration started in November.

Eurostat's flash estimates do not include a monthly calculation.

Euro zone economic sentiment deteriorated by far more than expected in February, Commission's data showed last week, with falling consumer confidence a poor harbinger for future spending.

The Group of 20 (G20) finance ministers and central bankers agreed on Saturday to use "all policy tools – monetary, fiscal and structural – individually and collectively" to shake the global economy out of its torpor.

It all points to more action from the ECB, whose Governing Council meets on March 10. It is expected to unveil a package of measures including a cut to its already negative deposit rate and tweaks to its asset-buying program.

With oil expected to remain cheap throughout the year, the European Commission in its winter forecasts, released on Feb. 4, estimated that euro zone inflation will average 0.5 percent in 2016.

(This version of the story has been corrected to clarify in first paragraph that inflation fell more than expected)

(Reporting by Francesco Guarascio; editing by Philip Blenkinsop)

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