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Euro-Area inflation rate remains negative as ECB ponders outlook

Tuesday, May 31, 2016 - 17:51
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Euro-area consumer prices failed to increase for a fourth consecutive month, highlighting policy makers' struggle to stoke inflation despite multiple rounds of stimulus.

[ZURICH] Euro-area consumer prices failed to increase for a fourth consecutive month, highlighting policy makers' struggle to stoke inflation despite multiple rounds of stimulus.

Prices fell 0.1 per cent in May from a year earlier, the European Union's statistics office in Luxembourg said on Tuesday. That's in line with the median estimate in a Bloomberg survey of economists and follows a drop of minus 0.2 per cent in April. The unemployment rate held at 10.2 per cent last month, according to a separate Eurostat release.

The European Central Bank, led by Mario Draghi, has been battling for the past three years to bring inflation in line with its mandate, cutting interest rates below zero and buying a raft of securities including sovereign bonds. Even with the economy slowly improving, consumer-price growth remains far away from the ECB's goal of just under 2 per cent, raising the question of whether extraordinary stimulus is losing its effectiveness.

"Inflation is way below the objective, so the ECB will keep the door for more easing open," said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. "It will not be easy for Draghi to choose the right words, he has to keep the easing fantasy alive but he has to say that growth is OK - not in every country, but on average it's OK."  

The ECB's next interest-rate decision will be announced on Thursday, and economists predict policy will remain unchanged after a fresh round of stimulus in March that included interest- rate cuts and a bump of US$267 billion to the bond-buying program. The Eurostat reports follow data on Monday showing that economic confidence within the 19-country bloc rose for a second month in May, with sentiment improving among consumers, as well as in retailing and in construction.

BLOOMBERG