Monday 24 October 2016

Euro zone return to inflation confirmed as energy impact wanes

Published 17/06/2015 | 11:55

ECB President Mario Draghi said the risks for the euro are on the downside. Reuters
ECB President Mario Draghi said the risks for the euro are on the downside. Reuters

The euro zone economy returned to inflation in May, the European Union's statistics office Eurostat confirmed on Tuesday, as more expensive food, tobacco and services outweighed the impact of lower energy prices.

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Eurostat said consumer prices in the 19 countries sharing the euro rose by 0.2 percent month-on-month May for a 0.3 percent year-on-year reading, confirming its earlier estimate. Prices in April had been flat.

Core inflation, which excludes the most volatile components of unprocessed food and energy, rose 0.1 percent month-on-month for a 0.9 percent year-on-year increase.

Eurostat said that in May, more expensive vegetables, restaurants and cafes and tobacco had the biggest upward impact on the overall year-on-year inflation value, while cheaper automotive fuel, heating oil and gas pulled the index down.

The European Central Bank wants to keep the headline measures of inflation at below, but close to 2 percent year-on-year over the medium term.

Worried by a trend of falling prices, the bank started buying government bonds in March to inject more cash in to the economy and make prices rise again. Some in the market believe the return of inflation could persuade the ECB to cut short its quantitative easing (QE), although most ECB policymakers have said they plan to carry out QE in full.

The ECB expects euro zone inflation to rise to 1.5 percent in 2016 and 1.8 percent, about at its target, in 2017.


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