Below Azad Zangana, European Economist at Schroders, comments on the Eurozone inflation figures announced today:
“Eurozone annual inflation has fallen to 0.5% in May, down from 0.7% the previous month. The ‘flash’ estimate is lower than the consensus estimates and highlights the degree of deflationary pressures in the Eurozone economy.
Within the details, the main drivers of the recent low figures have been low food and energy price inflation. The latest estimate shows energy price inflation flat compared to a year ago, while food, alcohol & tobacco inflation is up just 0.1%. Excluding these categories, core inflation is running higher at 0.7%, but even this represents a slowdown compared to April (1%).
Taking the weaker than expected GDP growth figures for the first quarter along with the lower than expected inflation numbers, the European Central Bank is now under pressure to deliver significant policy loosening. The market expects at least a cut in the main policy interest rate, along with a cut to the deposit rate, but will there be anything further to support bank lending and demand across the economy?”