Eurozone inflation remains negative in May

EU-Euro-Europe-Eurozone-700x450.jpgThe eurozone remains in deflationary territory in May with consumer prices falling 0.1 per cent, marking the third consecutive month of price drops.

According to the latest Eurostat flash estimate, published today, inflation was more positive compared to April when it stood at -0.2 per cent.

Additionally, core inflation edged up to 0.8 per cent from 0.7 per cent.

The major contributor to the euro area inflation in May is expected to be services, with an annual rate of 1 per cent compared to 0.9 per cent in April.

This was followed by food, alcohol and tobacco, where prices remained stable at 0.8 per cent compared to April.

The inflation data comes ahead of ECB policymakers gathering for the monthly meeting on Thursday.

IHS Global Insight chief UK and European economist Howard Archer says despite higher inflation, the ECB is not likely to change its monetary policy this year.

He says:”The ECB may well indicate that it is fully prepared to take further stimulative action if warranted to get Eurozone inflation up to its target level, but it will also likely reiterate its belief that policymakers across the Eurozone need to play a full role in supporting long-term growth, particularly through structural reforms aimed at boosting productivity and lifting employment.

“In fact, we believe that the ECB is much more likely than not to keep monetary policy unchanged through the rest of 2016. Furthermore, we are increasingly doubtful that the ECB will end up taking any more stimulative action.”

However, Archer says further ECB action might not be ruled out completely.

He says: “With the Eurozone still in deflation in May and inflation expectations still generally very low, the ECB will remain wary over second round effects on wages and prices setting behaviour.

“We believe if the ECB did eventually undertake further stimulative measures, it would most likely be through extending non-conventional measures rather than taking interest rates any lower. While the ECB has indicated that interest rates could possibly go lower, there is clearly heightened concern over the impact that negative/low interest rates are having on Eurozone banks.”