Euro Area Inflation Falls More than Expected, Boosting Case for ECB Stimulus

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Euro Area Inflation Falls More than Expected, Boosting Case for ECB StimulusEuro zone inflation declined more than expected in May, putting more pressure on the European Central Bank to institute stimulus measures to boost growth and prices.

The inflation rate fell from 0.7 percent in April to 0.5 percent last month, reported the European Union’s statistics office. Analysts surveyed by Bloomberg News had expected the rate to fall to 0.6 percent.

The core inflation rate, which is adjusted for volatile products such as energy, tobacco, food and alcohol, stood at 0.7 percent from April’s reading of 1 percent. However, the data is preliminary, with the final readings for May expected in June 16.

Energy prices remained unchanged in May after posting a decline of 1.2 percent in April, reported Eurostat. The prices of tobacco, food and alcohol accelerated 0.1 percent after surging 0.7 percent in April. The prices of services rose 1.1 percent.

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The ECB Governing Council is presently mulling various options such as negative interest rates and conditional liquidity for banks in order to stimulate a rise in prices and combat high unemployment. The unemployment rate declined to 11.7 percent in the economic bloc in April from March’s 11.8 percent.

“It’s a surprise, but not enough of a surprise to change materially the global economic outlook that the ECB will release on Thursday,” Michel Martinez, a Paris-based economist at Societe Generale SA told Bloomberg. “What seems highly likely is that the ECB will cut key rates and probably also inject further liquidity.”

The weak economic growth in the euro area has piled on more pressure on ECB to roll the stimulus, with unemployment rates still proving resistant to ECB’s interventions as the region battles with the aftermath of the debt crisis. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com