Eurozone inflation continues to fall

By Francisco Miñana

Date: Thursday 31 May 2012

Euro-area inflation came in well below forecasts in May to reach a 15-month low, fuelling speculation of a potential interest rate cut by the European Central Bank (ECB) in the coming months.

The Eurozone's consumer price index (CPI) fell from 2.6% in May to 2.4% this month, according to the preliminary data released by Eurostat, the European Union's (EU) official statistics office. The consensus estimate was for inflation of 2.5%.

The preliminary reading tends to be highly reliable as it combines historic data from the Monetary Union Index of Consumer Prices (MUICP) with the most recent data from the different EU members. Nevertheless, the final reading will be released on June 14th.

“Falling prices is a good sign although it was mostly a result of lower demand,” said analysts at Digital Look.

Prices are gradually falling to the 2% inflation target set by the ECB.

“We believe that Mario Draghi and his colleagues at the ECB will be forced to apply new monetary stimulus measures such as liquidity injections in order to shore up a difficult economy that is hurting the management of the debt crisis. This inflation data should give Draghi more room for manoeuvring,” analysts said.

FM

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