Euro zone inflation rises

Euro zone inflation accelerated in May, led by the Netherlands, adding to signs the currency bloc’s economy is beginning to emerge from a record-long recession.

Annual consumer-price growth quickened to 1.4 per cent from 1.2 per cent in April, in line with an initial estimate on May 31, the European Union’s statistics office in Luxembourg said today. In the month, prices rose 0.1 per cent.

The annual core inflation rate, excluding volatile costs such as energy, alcohol and tobacco, rose to 1.2 per cent from 1 per cent in April.

The European Central Bank last week kept its benchmark interest rate at a record low 0.5 per cent, with ECB president Mario Draghi saying the euro-area economy "should stabilize and recover in the course of the year, albeit at a subdued pace."

The ECB cut its 2013 inflation forecast to 1.4 per cent from 1.6 per cent.

“Even if we are going to see a gradual economic recovery, inflation will remain well behaved, I think, next year,” said Martin van Vliet, senior euro-area economist at ING Bank in Amsterdam.

“From an inflation point of view, there’s certainly some scope for the ECB to do more if necessary.”

The euro was lower against the US dollar, trading at $1.3323 at 11.05am in Brussels, down 0.4 per cent on the day.

Gross domestic product fell 0.2 per cent in the first quarter, a sixth consecutive contraction.

Consumer-price growth has been below the ECB’s 2 per cent ceiling for four months.

Energy costs fell 0.2 per cent last month from a year earlier, compared with a drop of 0.4 per cent in April, according to today’s report.

The cost of food, alcohol and tobacco rose 3.2 per cent after a 2.9 per cent annual gain in April, while the cost of services increased 1.5 per cent.

Continued lower energy costs have given a boost to euro- zone factory output, which unexpectedly increased for a third month in April.

A Markit Economics gauge of manufacturing output increased to the highest in 15 months in May, a report showed on June 3.

Bloomberg