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Eurozone is facing inflation again

Eurozone is facing inflation againThe eurozone returned to inflation in June after four consecutive months of falling or stable prices, new data confirmed on Friday.

Eurozone inflation has slotted in line with expectations, running at an annual pace of 0.1 per cent in June, up from -0.1 per cent in May.

Low fuel and gas prices continued to provide a drag on inflation, offsetting increased prices at restaurants, cafes, rents and tobacco.

The annual rate was at least positive in June, but is well short of the ECB’s target of just below 2 percent. Prices had not risen in the 19 countries using the euro since January, with deflation in three of the subsequent four months and a zero reading for March.

The ECB has promised to take any action needed to preserve financial stability after Britain voted on June 23 to leave the European Union. The Bank of England shocked markets on Thursday by not cutting interest rates as it awaits data showing the impact of the referendum vote.

The leading economies of Germany and France posted price growth of 0.2% and 0.3%, respectively, though prices in third and fourth-ranked Italy and Spain fell 0.2% and 0.9%, respectively, on the year.

Across the wider 28-nation European Union, where price growth stagnated year-on-year, Cyprus, Bulgaria and Croatia posted the steepest year-on-year declines, with Belgium, Sweden and Malta reporting the biggest gains.

“Deflation is yesterday’s story in this business cycle. A rebound in energy prices was the principal reason for the small increase in eurozone inflation last month. Energy prices fell 6.1% year-over-year, up from a 8.1% decline in May. Base effects likely will continue to push this rate higher in coming months,” Pantheon Macroeconomics concluded.
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