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31 May 2017
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Eurozone (The Total Investment & Insurance Solutions)
Inflation across the 19-country eurozone has fallen to its lowest level
this year, official figures showed Wednesday, in a development that may temper
speculation that the European Central Bank will soon consider easing up on its
monetary stimulus. The Total Investment
& Insurance Solutions
Eurostat, the EU's statistics agency, said
that inflation fell to 1.4 percent in the year through May from 1.9 percent the
month before. May's rate is the lowest rate since December 2016 when inflation
stood at 1.1 percent. The Total
Investment & Insurance Solutions
The most important reason why inflation has
been so volatile in recent months is connected to the price of oil, which is
off the lows recorded last year but still swinging fairly widely. In the year
to May, energy prices were up 4.6 percent. However, May's increase was the
smallest this year and down sharply on April's equivalent rate of 7.6 percent. The Total Investment & Insurance
Solutions
The decline in the rate, which was slightly
sharper than anticipated, means that inflation has fallen away from the ECB's
target of just below 2 percent. The rise in inflation in April to the target
had stoked talk in financial markets that the central bank would soon be in a
position to at least start mulling the possibility of withdrawing some of its
stimulus, possibly at next Thursday's policy meeting.
The ECB has slashed interest rates, including
its main one to zero, and embarked on a big bond-buying stimulus program to
keep a lid on market interest rates. Its primary aim is to get inflation back
toward its target and then to start easing off the bond-buying program.
A major reason why inflation fell back
sharply in May was the decline in the core rate, which strips out the volatile
items of alcohol, food, tobacco and energy. That slipped back to 0.9 percent
from the previous month's 1.2 percent. The
Total Investment & Insurance Solutions
Modest underlying rates of inflation point to
sluggish wage demands even at a time when the eurozone economy is performing
relatively strongly and unemployment has been dropping. ECB President Mario
Draghi has pointed to the subdued core rate in recent months to urge caution
over the bank radically changing tack soon. The Total Investment & Insurance Solutions
"That should allow the ECB to continue
to stress that underlying inflation pressure in the euro area remains weak,
despite strengthening growth, when it meets next week," said Cathal
Kennedy, European economist at RBC Capital Markets. The Total Investment & Insurance Solutions
As a result, Kennedy says that while the ECB
is likely to upgrade its economic forecasts on Thursday, it will probably
remain cautious about any talk of tapering off the stimulus program. The Total Investment & Insurance
Solutions
Some economists think Draghi may drop any
reference in his statement to the possibility of lowering interest rates or
increasing stimulus going forward. A raft of indicators over recent weeks has
shown that the eurozone economy has picked up steam, particularly in France and
in many of those countries that have been at the heart of Europe's debt crisis,
including Spain and Ireland.
The rebounding economy was evident in
unemployment figures from Eurostat. The agency found that the eurozone's
jobless rate fell 0.1 percentage point in April to 9.3 percent, its lowest
level since March 2009, when the region, like the world economy, was in the
midst of a savage downturn following the global financial crisis. During April,
Eurostat said 233,000 people came off the eurozone's jobless register, taking
the total unemployed down to 15.04 million.The Total Investment & Insurance Solutions
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