Deflation in Europe isn't happening -Consumer spending is up

Consumer prices grew 0.8% in February from a year earlier in the euro zone, the European Union's statistics office Eurostat said Friday, well below the ECB's target of just below 2%. But that was higher than expected, with the consensus forecast of 24 economists surveyed by The Wall Street Journal last week for a reading of 0.7%.

"February's euro-zone consumer prices figures don't change the picture of very weak price pressures in the currency union and hence don't rule out further policy action from the ECB next week," said Jonathan Loynes, chief European economist at Capital Economics.

Those policy makers who are reluctant to provide further stimulus may also be encouraged by figures released by Germany's statistics agency Friday, which showed retail sales in the euro zone's largest member rose at the fastest pace since February 2007, jumping 2.5% from the previous month.

ECB policy makers have repeatedly said they don't expect outright declines in consumer prices, known as deflation. They reject comparisons with Japan, which struggled with deflation for two decades, saying the ECB has acted more decisively than Japan did in the 1990s and that European banks are stronger.

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.