Annual consumer inflation in the 18 countries sharing the euro fell
to 0.5 percent in May from 0.7 percent in April, the EU's statistics
office Eurostat said on Tuesday.
Economists surveyed by Reuters expected inflation to remain at
"The ECB hardly needs any more reason to deliver a major package of
stimulative measures at its June policy meeting on Thursday to
counter the risk of prolonged very low inflation turning into
deflation," said Howard Archer, chief European economist at
consultancy IHS Global Insight.
Sources told Reuters last month that the ECB was preparing a package
of policy options for its meeting on Thursday, including cuts in all
its interest rates and targeted measures aimed at boosting lending
to small- and mid-sized firms (SMEs).
The weak rate of May price rises would seem to cement expectations
that the ECB will now deliver a series of measures to make it even
cheaper to borrow and help the economy.
May's reading is back at levels last seen in March - the lowest
level since November 2009. Tuesday's reading came after a low number
Inflation in the 9.5 trillion euro economy is stuck in the ECB's
'danger zone' of below 1 percent, a sign of the fragile recovery.
The ECB says it stands ready to use all tools available to fend off
deflation risks and aid the economy.
"The ECB has consistently underestimated the deflationary forces
threatening Europe and now is the time for unconventional monetary
policy," said Dominic Rossi, global chief investment officer at
Fidelity Worldwide Investment.
Core inflation, excluding energy, food, alcohol and tobacco, fell to
0.7 percent in May from 1.0 percent in April. Energy prices were
flat on the year, showing no decline for the first time in five
Global financial markets have been buoyed by the odds of cheaper
money in the bloc and could react sharply if the ECB does not
deliver on Thursday.
The euro rebounded against the dollar after the inflation data was
released, suggesting the markets have already priced in expectations
of incoming monetary policy easing by the ECB.
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In a sign of the slow economic recovery, a separate Eurostat data
release showed the bloc's unemployment dipped marginally to 11.7
percent in April from 11.8 percent, but still near the record high
of 12 percent registered a year ago.
Some 18.75 million of people are without jobs in the euro zone -
76,000 less than in March, the Eurostat data showed.
Joblessness has been stuck at almost 19 million people for the last
four months and shows the human impact of the worst financial crisis
in a generation, but it also varies widely across the euro zone.
The European Commission, the EU executive, said the April
unemployment data was a positive sign, but there were many tough
challenges ahead on the road towards a significant improvement.
"The EU finally has to turn a vicious circle into a virtuous one,
where more people can work, earn, spend and thereby create demand
for other people's work too," Laszlo Andor, the EU's commissioner
for employment said in a statement.
"By shifting taxation away from low-paid labour, hiring can be made
easier and household incomes can be boosted," he added.
(Additional reporting by Robin Emmott Editing by Jeremy Gaunt)
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