Euro zone prices continued to fall last month, in defiance of a reinforced European Central Bank campaign to spur inflation in the single currency area.
Two days before ECB governors gather to set interest rates at a meeting in Vienna, new data showed that the rate at which prices fell eased in May from the previous month.
Eurostat, the EU’s statistical agency, said euro zone inflation was expected to be minus 0.1 per cent in May, up from minus 0.2 per cent in April yet still the fourth consecutive month of decline. The biggest price change was in the energy sector, where the annual rate at which prices dropped eased to 8.1 per cent in May from 8.7 in April.
Data show that the core inflation rate, which strips out volatile elements such as food and energy, accelerated to 0.8 per cent from 0.7 per cent in April.
Boost prices
The overall outcome marks a small degree of progress in the effort to boost prices but price trends remain well off the official inflation target of below but close to 2 per cent, a level not seen for more than three years.
In spite of a big boost to the ECB’s contentious quantitative easing programme in March, the bank is still struggling to achieve a decisive turnaround in the outlook for growth and prices.
However, ECB president Mario Draghi is unlikely this week to push for an intensified bond-buying or to bring interest rates deeper into negative territory.
“We do not expect any change in monetary policy to be announced by the ECB, the Federal Reserve or the Bank of Japan in June, but statements and guidance will be watched closely,” said analysts at UBS in London.
Key challenge
“We think the key challenge for Mr Draghi will be to not appear too hawkish amid rising oil prices and robust euro zone [first quarter] GDP growth, and we believe it too early for the ECB to send strong signals about the duration of quantitative easing beyond March of next year. But much will be discussed.”
Eurostat said prices for services were projected to have the highest annual inflation rate in May, up 1 per cent from 0.9 per cent in April.
The ECB will present its new staff forecasts after its governors meet, data which will set the ground for any discussion within the bank of new measures to fortify the euro zone economy.
