UPDATE 1-Euro zone inflation softens in June on energy dip

30 Jun 2015 | Author: | No comments yet »

Euro zone inflation softens on energy price falls.

BRUSSELS: Inflation in the eurozone slowed to 0.2 per cent in June, official data showed on Tuesday (Jun 30), with consumer prices rising just slightly in Europe despite unprecedented stimulus measures by the European Central Bank. BRUSSELS (AP) — Official figures show that inflation across the 19-country eurozone eased in the year to June to 0.2 percent from 0.3 percent the month before.The annual inflation rate in the 19-nation region was 0.2 percent after 0.3 percent in May, the European Union’s statistics office in Luxembourg said on Tuesday.

The eurozone suffered four months of deflation earlier this year, and the fall in price rises will trigger worries that a dangerous spiral of falling prices could be on the return. Economists fear deflation almost as much as rampant inflation because shoppers tend to put off purchases in the belief they may be cheaper in the future. Talks with creditors on a new bailout have collapsed and the country is set to miss a payment to the International Monetary Fund on Tuesday. “Normalization of inflation is still far away, but at least the euro zone has started the journey,” Teunis Brosens, an economist at ING Bank NV in Amsterdam. “With deflation crossed off the list, the ECB can now fully focus on Greece.” While inflation is back above zero, that compares with the ECB’s aim to keep it just below 2 percent.

Under its money-printing quantitative easing scheme, the ECB is buying government bonds and other assets to pump around €1 trillion euros into the economy, aiming to lift inflation towards its target rate of just under 2 per cent. Jennifer McKeown, senior European economist at Capital Economics, said in a note that the renewed decline in euro zone inflation highlighted that the ECB still had a lot of work to do to hit its target in the medium term, with euro zone inflation now below 0.5 per cent for a year.

With the euro-area economy slowly improving and oil off its low, the central bank lifted its inflation forecast for 2015 last month to 0.3 percent from zero. However, he pointed to a rise of prices for industrial goods of 0.4 per cent, double the rate in May, as a possible sign that the weaker euro, which would make imports more expensive, was having an impact. Preliminary data for Germany, Europe’s largest economy, showed on Monday that consumer prices there inched up by just 0.1 percent, a steep drop from the 0.7 percent increase in May and below the 0.4 percent market forecast. Germany’s federal statistics office did not publish a detailed breakdown, but figures issued by German states showed that weak price pressure was partly due to lower energy inflation and the reversal of May’s rise in package holidays.

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