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Euro-area inflation rate turned positive before Brexit vote

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Inflation unexpectedly returned to the euro area in June, suggesting that central-bank stimulus may have been starting to filter through to the economy before Britons chose to leave the European Union.

[WARSAW] Inflation unexpectedly returned to the euro area in June, suggesting that central-bank stimulus may have been starting to filter through to the economy before Britons chose to leave the European Union.

Consumer prices rose 0.1 per cent from a year earlier, the European Union's statistics office in Luxembourg said on Thursday. That's the first increase since January and compares with a median estimate of unchanged prices, according to a Bloomberg survey of economists.

European Central Bank President Mario Draghi has been counting on a slow inflation pick-up in the second half as oil prices stabilize and the region continues its moderate recovery. Ahead of Britain's vote to leave the EU, he expressed confidence that price growth in the region would return to the institution's goal of just under 2 per cent in the "not-too- distant" future.

That may now take longer to achieve despite the latest positive surprise as growth in the 19-nation economy is set to suffer in the wake of the UK referendum. Output may drop as much as 0.5 per cent below previous projections over the next three years, Mr Draghi told European leaders in Brussels.

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Policy makers already have deployed a raft of unconventional stimulus that includes large-scale asset purchases, negative interest rates and long-term loans that see banks getting paid for extending credit to companies and households. Still, inflation has undershot the ECB's goal for more than three years.

In June, core inflation accelerated to 0.9 per cent from 0.8 per cent in May, Eurostat said.

Consumer prices declined an annual 0.9 per cent in Spain., while the inflation rate in Germany rose to 0.2 per cent, the highest since January, according to national reports.

The euro-area release follows data on Wednesday showing that economic confidence in the region weakened in June in anticipation of Britain's referendum, even as sentiment improved in some countries with larger shares of trade with the UK like Germany and the Netherlands.

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