World Economy

Eurozone Inflation Softens

Eurozone Inflation SoftensEurozone Inflation Softens

Eurozone 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 European Union’s statistics office Eurostat said on Tuesday that consumer prices in the 19 countries sharing the euro rose by 0.2% year-on-year in June from a 0.3% increase in May, Reuters reported.

The figure was in line with expectations. However, far lower than expected inflation figures for Germany released on Monday had braced the market for a potentially weaker number.

Excluding volatile energy prices, which were 5.1% lower in June than 12 months earlier, consumer prices rose 0.9%. Excluding energy and unprocessed food–what the European Central Bank calls core inflation–prices were up 0.8% from 0.9% in May.

Under its money-printing quantitative easing scheme, the ECB is buying government bonds and other assets to pump around €1 trillion ($1.1 trillion) into the economy, aiming to lift inflation towards its target rate of just under 2%. QE is intended to last until September 2016.

Jennifer McKeown, senior European economist at Capital Economics, said in a note that the renewed decline in eurozone inflation highlighted that the ECB still had a lot of work to do to hit its target in the medium term, with eurozone inflation now below 0.5% for a year. She added that the unemployment rate, unchanged at 11.1% in May, suggested that wage growth was unlikely to take off.

Teunis Brosens, eurozone economist at ING, said that May’s spike in core and services inflation had been reversed, implying that there was no trend increase.