Euro zone price inflation hits trough in May

[June 16, 2014] By Martin Santa

BRUSSELS (Reuters) - A further slowdown in euro zone inflation in May was confirmed on Monday, as the cost of telecommunication and food kept prices low, confirming a problem that the European Central Bank recently sought to stem.

Consumer prices in 18 countries using the euro rose by 0.5 percent on the year in May, keeping them in the 'danger zone' of below 1 percent, the EU's statistics office Eurostat data said.

Prices fell by 0.1 percent on the month in May, with the cost of services down by 0.2 percent when compared with April.

It confirms a problematic pricing trend that weighs on debt-strapped countries and recently prompted the European Central Bank to act.

In June, the ECB became the first major central bank to introduce negative deposit rates - charging banks to park funds overnight. It also launched ultra-cheap four-year loans to banks in order to boost lending to companies.
 

ECB President Mario Draghi said he was ready to act again, leaving investors guessing as to when he could start buying assets such as bonds - a measure known as quantitative easing.

Executive Board member Benoit Coeure said on Friday there was no need to launch large-scale asset purchases for now because the euro zone is not seeing deflation.

There are, however, three euro zone countries experiencing price deflation.

Consumer prices in Greece were down in May by 2.1 percent compared to a year earlier after a 1.6 percent drop in April. The annual rate of inflation in Portugal was -0.3 percent in May. In Cyprus, it stood at -0.1 percent.

With 12-month average annual inflation rate in the euro zone at 0.9 percent in May, only Luxembourg, Austria, Slovenia and Finland had an annual inflation rate of 1 percent or more.

Core inflation, excluding energy, food, alcohol and tobacco, fell to 0.7 percent in May from 1 percent in April. Energy prices were flat on the year.

The ECB recently lowered its forecast for euro zone inflation in June, predicting that it would reach 1.4 percent in 2016 - far off its target of below but close to 2 percent.

(Reporting by Martin Santa; editing by John O'Donnell)

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