Brussels, 03/06/2014 (Agence Europe) - Pressure is rising on the European Central Bank to introduce measures to force prices up, following the announcement by Eurostat on Tuesday 3 June that inflation fell in the eurozone to 0.5% in May.
In a press release, Eurostat, the European Union's statistical office, explains that eurozone annual inflation is expected to be 0.5% in May 2014, down from 0.7% in April.
Looking at the main components of euro area inflation, services is expected to have the highest annual rate in May (1.1%, compared with 1.6% in April), followed by food, alcohol & tobacco (0.1%, compared with 0.7% in April), non-energy industrial goods (0.0%, compared with 0.1% in April) and energy (0.0%, compared with -1.2% in April).
Is this evidence of the downward inflationary spiral feared by the European Central Bank (see EUROPE 11088)? Inflation in the eurozone has been below 0.9% since October 2013, and fell to its lowest level in February before rising in April. Eurostat's April figures for the eurozone show that deflation has taken hold in Greece (-1.6%), Cyprus (-0.4%), Slovakia (-0.2%) and Portugal (-0.1%).
Under the EU treaty, the ECB has the job of ensuring medium-term inflation is just below 2%, a level it is not expecting to reach until the end of 2016. At the start of May 2014, the head of the ECB, Mario Draghi, said that the ECB had no problems with the idea of introducing new monetary measures at the Governing Council of Thursday 5 June if inflation forecasts continued to deteriorate (see EUROPE 11075).
The ECB is considering a number of measures. It may introduce negative interest rates (they currently stand at zero) for very short-term deposits by banks. Another option is a massive injection of cash for banks to use to encouraging lending to the real economy. Any launch of quantitative easing in the longer-run, by the ECB purchasing large amounts of private and/or public bonds on the markets, would only be done in the event of a slump in eurozone economy. (MB)