Euro-area inflation remains weak at 0.5% in June

Latest figures show inflation has been below 1 per cent every month since last October

A customer carries a shopping basket through the vegetable aisle inside a Netto discount store, operated by Danske Supermarked  in Copenhagen. Photographer: Freya Ingrid Morales/Bloomberg

A customer carries a shopping basket through the vegetable aisle inside a Netto discount store, operated by Danske Supermarked in Copenhagen. Photographer: Freya Ingrid Morales/Bloomberg

Thu, Jul 17, 2014, 12:10

The euro-area inflation rate held steady in June, as weak energy and food costs continued to subdue prices.

Annual consumer-price growth remained at 0.5 per cent, in line with an initial estimate on June 30th, the European Union’s statistics office in Luxembourg said today.

Energy costs increased 0.1 per cent, after stagnating in May, while prices of alcohol, food and tobacco declined 0.2 per cent following a 0.1 per cent rise.

The European Central Bank is trying to stop inflation falling too low in an economy struggling to recover from a debt crisis that threatened to blow the euro system apart.

Inflation has been below 1 per cent every month since October. “We expect price pressures to remain subdued,” said Michel Martinez, an economist at Societe Generale SA in Paris.

“The ECB is going to remain in a wait-and-see mode this year, but given the downside risks to growth and inflation, we maintain our call for more action early next year, focused on asset purchases.”

The ECB left its main refinancing rate unchanged at a record low of 0.15 per cent and the deposit rate at minus 0.1 per cent at its meeting on July 3.

ECB president Mario Draghi reiterated his pledge that rates will stay at present levels for an extended period.

This follows the central bank’s announcement of unprecedented stimulus measures after its June 5th policy meeting. That package included the negative deposit rate, and an extension of unlimited short-term liquidity that will last until at least 2016.

Price stability in the euro area is threatened by changes of factors such as “energy and food prices, relative price adjustment in stressed countries, exchange rate behavior, weak demand and high unemployment,” Mr Draghi said in a speech in London on July 9th.

The cost of services increased 1.3 pe rcent after a 1.1 per cent jump in May.

The core inflation rate, which excludes volatile items such as energy, food, alcohol and tobacco, increased 0.8 per cent after a 0.7 per cent advance the previous month.

Bloomberg