Euro-area inflation at weakest in almost five years

Inflation rate has been weaker than 1 per cent for last 10 months

The headquarters of the European Central Bank (ECB) stands beyond a euro sign sculpture in Frankfurt, Germany. Euro-area inflation unexpectedly slowed in July to the weakest in almost five years, underscoring the ECB’s concerns that the economy is too feeble to drive price growth. Photo: Bloomberg

The headquarters of the European Central Bank (ECB) stands beyond a euro sign sculpture in Frankfurt, Germany. Euro-area inflation unexpectedly slowed in July to the weakest in almost five years, underscoring the ECB’s concerns that the economy is too feeble to drive price growth. Photo: Bloomberg

Thu, Jul 31, 2014, 12:41

Euro-area inflation unexpectedly slowed in July to the weakest in almost five years, underscoring the European Central Bank’s concerns that the economy is too feeble to drive price growth.

Inflation was 0.4 per cent compared with 0.5 per cent in June, the European Union’s statistics office in Luxembourg said today. That is the weakest since October 2009.

Having unleashed an unprecedented round of easing measures, the Frankfurt-based European Central Bank is seeking to rekindle price growth and help the 18-country bloc’s battered economy.

For the past 10 months the inflation rate has been weaker than 1 per cent, less than half the ECB’s goal, while joblessness has remained stubbornly near an all-time high for months.

Adding to the risks are the geopolitical tensions between Russia and Ukraine, and conflicts in the Middle East.

“This is most likely the trough in inflation, and inflation will move slowly upwards from here,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam.

“It seems unlikely the ECB will take fresh measures to ease policy further - I don’t see this as a trigger for a large-scale quantitative easing program, as long as this proves the trough.”

The ECB’s announcement last month of a negative deposit rate and a program to improve bank lending is its most significant since since ECB president Mario Draghi announced two years ago he’d do “whatever it takes” to save the euro.

The ECB warned the economy could take some time to respond to the barrage of stimulus and even left open the door for further action. Policy makers are next scheduled to meet next week in Frankfurt.

The euro traded at 1.3386 per dollar at 11.50am in Frankfurt, little changed from yesterday.

While the ECB’s measures have helped push the average yield on bonds from Europe’s most-indebted nations to a record low, they have not yet boosted prices, growth and lending.

The unemployment rate unexpectedly fell in June to 11.5 per cent from 11.6 per cent in May, Eurostat said today.

While that’s still near a record high, it is less than economists’ forecast of 11.6 per cent.

Joblessness continued to vary widely across the euro area in June, from a low of 5 per cent in Austria to 24.5 per cent in Spain.

Bloomberg