Eurozone on brink of deflation as price growth slows to 0.1 per cent
Eurozone inflation dropped to a four-year low of just 0.1 per cent in May, data has shown, as the coronavirus pandemic put the single-currency bloc perilously close to deflationary territory.
In an early estimate, the European Union’s statistics body said Eurozone month-on-month inflation was just 0.1 per cent as energy prices plunged.
Core inflation, which strops out the volatile categories of energy, food, alcohol and tobacco, was 0.8 per cent in May, Eurostat said.
The 0.1 per cent reading is far below the European Central Bank’s (ECB) two per cent target. It will add to expectations that the ECB will ramp up its massive bond-buying programme at its meeting next week.
A survey by Bloomberg found that analysts expect the central bank to increase its bond-buying by €500bn (£450bn) on Thursday. That would take its quantitative easing (QE) programme to €1.6 trillion this year.
The Eurozone economy has been decimated by coronavirus. Lockdowns have caused demand to dry up and severely disrupted supply chains.
However, today’s Eurostat figures showed that it was the plunge in energy prices that drove Eurozone inflation down to 0.1 per cent this month.
Energy prices drag down Eurozone inflation
Energy prices fell by 12 per cent in May compared to a 9.7 per cent drop in April, Eurostat said. Meanwhile, food, alcohol and tobacco prices grew 3.3 per cent and services prices rose 1.3 per cent.
Belgium, Ireland, Greece, Spain, Italy and Portugal all suffered deflation in May, Eurostat said. In the more resilient economies of Germany, France and the Netherlands, prices rose.
Yet Christoph Weil of Commerzbank cautioned that the data was more uncertain than usual. He said that “many prices could not be determined locally due to corona restrictions”.
The ECB meets next week at a key moment in the Eurozone’s fight against the economic fallout from coronavirus.
It is likely to shrug off a recent ruling by the German constitutional court, which criticised its bond-buying programme from 2015, and ramp up its bond purchases further to try to stimulate inflation.