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

30 Jun 2015 | Author: | No comments yet »

Euro zone inflation slips to 0.2% in June.

Euro zone inflation softened in June, moving away from the European Central Bank’s target as energy costs weakened and the price rises of food and services eased after a spike in May. 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. Consumer prices rose for the first time in six months in May, helped by massive monetary stimulus from the ECB to boost inflation and economic growth in the 19-country single currency zone. The positive price developments, which should ease concerns among European Central Bank policy makers, are being overshadowed by the escalation of Greece’s debt crisis.

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. Consumer prices in Germany—viewed as the economic “strongman” of the euro zone—rose just 0.1 percent in June from a year earlier, compared with a 0.7 percent rise in May. 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. The ECB has said it will continue its 1 trillion euro ($1.1 trillion) asset-purchase program well into next year to allow economic recovery and inflation to take hold. 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. 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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