Prices continue to fall in euro zone as core inflation creeps up

Eurostat says euro zone inflation was expected to be -0.1% in May

 Mario Draghi:  The president of the European Central Bank  is unlikely this week to push for an intensified bond-buying or to bring interest rates deeper into negative territory. Photo: David Sleator/The Irish Times

Mario Draghi: The president of the European Central Bank is unlikely this week to push for an intensified bond-buying or to bring interest rates deeper into negative territory. Photo: David Sleator/The Irish Times

 

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

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

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.