European Deflation Fears Advance With Low CPI

A further slowdown in euro zone inflation in May was confirmed on Monday, as the cost of telecommunication and food kept prices low, confirming a problem that the European Central Bank recently sought to stem.

Consumer prices in 18 countries using the euro rose by 0.5 percent on the year in May, keeping them in the ‘danger zone’ of below 1 percent, the EU’s statistics office Eurostat data said.

Prices fell by 0.1 percent on the month in May, with the cost of services down by 0.2 percent when compared with April.

It confirms a problematic pricing trend that weighs on debt-strapped countries and recently prompted the European Central Bank to act.

In June, the ECB became the first major central bank to introduce negative deposit rates – charging banks to park funds overnight. It also launched ultra-cheap four-year loans to banks in order to boost lending to companies.

ECB President Mario Draghi said he was ready to act again, leaving investors guessing as to when he could start buying assets such as bonds – a measure known as quantitative easing.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza