Sunday 27 May 2018

Oil rally not enough to shake Eurozone out of deflation slide in May

Mario Draghi, President of the European Central Bank (ECB) Photo: AFP/Getty Images
Mario Draghi, President of the European Central Bank (ECB) Photo: AFP/Getty Images

Catherine Bosley

Euro-area consumer prices failed to increase for a fourth consecutive month, highlighting policy makers' struggle to stoke inflation despite multiple rounds of stimulus.

Prices fell 0.1pc in May from a year earlier, the European Union's statistics office in Luxembourg said yesterday. That's in line with the median estimate in a Bloomberg survey of economists and follows a drop of minus 0.2pc in April. The unemployment rate held at 10.2pc last month, according to a separate Eurostat release.

The European Central Bank, led by Mario Draghi, has been battling for the past three years to bring inflation in line with its mandate, cutting interest rates below zero and buying a raft of securities including sovereign bonds.

Even with the economy slowly improving, consumer-price growth remains far away from the ECB's goal of just under 2pc, raising the question of whether extraordinary stimulus is losing its sway.

"I would not say the ECB's policy is without effect," said Ulrike Kastens, senior economist at Sal Oppenheim Group in Cologne. Monthly fluctuations in inflation data are nothing the ECB can influence with a policy designed to ensure price stability in the medium term, she said, adding that in any case, May inflation data in line with expectations "definitely doesn't put pressure on the ECB".

The ECB's next interest-rate decision will be announced tomorrow, and economists predict policy will remain unchanged after a fresh round of stimulus in March that included interest-rate cuts and a bump of €240bn to the bond-buying programme. Draghi will hold a press conference in Vienna, where officials gather for one of their regular out-of-Frankfurt sessions.

In a separate release yesterday, ECB data showed that loans to non-financial corporations rose 1.2pc in April, compared with 1.1pc in March. Lending to households slowed.

Most economists in Bloomberg's monthly survey predict the central bank's forecasts for inflation and growth will be left unchanged or increased at this week's meeting. Two-thirds predict Draghi will eventually need to announce yet more stimulus. (Bloomberg)

Irish Independent

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