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Eurozone inflation nears four-year low in May

By Michele Maatouk

Date: Friday 29 May 2020

Eurozone inflation nears four-year low in May

(Sharecast News) - Eurozone inflation fell to a near four-year low in May as energy prices slid, according to figures released by Eurostat on Friday.
Headline inflation in the bloc declined to 0.1% year-over-year from 0.3% in April, in line with consensus expectations and marking the smallest rise since June 2016.

Energy prices slumped 12% on the year, having fallen 9.7% in April. Food, alcohol & tobacco prices were down 3.3% in May compared to a 3.6% decline in April.

Core inflation - which strips out energy, food, alcohol and tobacco - was steady at 0.9%.

Jessica Hinds, European economist at Capital Economics, said: "The further fall in eurozone inflation in May took the headline rate to within a whisker of zero and downward pressure on prices is set to persist while demand remains weak and unemployment rises.

"Looking ahead, our forecast for oil prices to recover suggests that the drag from energy inflation on the headline rate should now start to ease. But the core rate is unlikely to hold up for much longer in the face of the collapse in aggregate demand and subsequent slow recovery, as well as rising unemployment. So the European Central Bank's below-but-close-to 2% target will look even further out of reach, keeping the pressure on the Bank. And with economic output set to remain below pre-virus levels for the next couple of years, the ECB will keep policy ultra-loose for the foreseeable future."

ING said: "The severe economic fallout is having a deflationary effect, which means the ECB is likely to stay in a crisis-fighting mode for some time to come."

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