BRUSSELS |
(Reuters) - Euro zone inflation eased
by more than expected to its lowest level in more than a year in May,
giving the European Central Bank a little more room to lower interest
rates to help revive economic growth across the continent.
Consumer price inflation in the
17 nations sharing the euro fell to 2.4 percent year-on-year in May
from 2.6 percent in April, the EU's statistics office Eurostat said on
Thursday. Economists polled by Reuters had forecast inflation of 2.5
percent.
ECONOMISTS' COMMENTS
LUC ABEN, VAN LANSCHOT
"It's
in line with expectations. We expected inflation to trend downwards
with the economic situation as the main reason. There's a slowdown not
only in Europe, but also in China and India, which reduces pressure on commodities and therefore on inflation.
"As
long as headline inflation remains above 2 percent it's crystal-ball
gazing at the ECB. Do they have to do something? I think if it doesn't
help, it doesn't harm either.
"If
you look at money supply, credits and the way that money moves, we have
to ask ourselves whether there would be a big difference if the ECB
lowers rates to 50 basis points.
"Half of nothing is still nothing. The problem of the euro zone
is not expensive money, it's far more structural than that. But I still
think that the ECB will take a small step in the coming months."
CHRISTOPH WEIL, COMMERZBANK
"The
decrease is caused by the fall in oil prices. Core inflation is still
at 1.6 percent. The outlook depends on the oil price as well and we
don't expect it to decline but to stabilize at current levels.
"That
would mean that inflation would still have a 2 before the decimal point
at the end of the year. We see inflation to be back in line with the
ECB target in the spring of 2013.
"We
have a downward trend, that took long enough, and inflation risk is low
as well, if you look at wage developments in the euro zone. We are also
facing a recession which means that companies will find it harder to
pass on price increases. That means inflation risk is low and that gives
the ECB leeway to further lower rates."
HOWARD ARCHER, IHS GLOBAL INSIGHT
"Some
all too rare recent good news for the euro zone as consumer price
inflation fell more than expected to a 15-month low of 2.4 percent in
May. Inflation had previously been stuck in a 2.6-2.7 percent range
through the previous five months after dipping to 2.7 percent in
December from a three-year high of 3.0 percent over the three months
through to November 2011.
"May's
drop in consumer price inflation eases the squeeze on consumers'
purchasing power, thereby providing much needed support to growth. It
also facilitates an interest rate cut by the ECB sooner rather than
later, and there is an ever more compelling case for this given the
current deteriorating economic growth environment in the euro zone and
the heightened uncertainty stemming from the situations in both Greece and Spain.
"While
a breakdown of euro zone consumer price inflation in May is not yet
available, it is highly probable that a marked retreat in oil prices
helped bring down energy and transport costs in May. It is also very
possible that core inflation edged down in reaction to weakened economic
activity.
"Having been sticky
through the early months of 2012, the prospects are improving for euro
zone consumer price inflation to head lower. Oil prices have fallen back
sharply in recent weeks, while there are mounting signs that underlying
price pressures are easing in the euro zone in reaction to weakened
economic activity and high and rising unemployment.
"The
latest European Commission business and consumer survey shows that
consumers' inflation expectations fell back sharply to a 16-month low in
May while selling price expectations softened appreciably among
manufacturers, service companies, retailers and construction companies.
"Meanwhile,
the composite output prices index of the manufacturing and services
purchasing managers' surveys indicated that prices fell modestly in May.
"Pressure
on the ECB to take interest rates below 1.0 percent sooner rather than
later is mounting from the deteriorating economic environment and threat
to activity coming from the heightened tensions and uncertainty over
Greece and Spain.
"And moderating
consumer price inflation, sharply lower oil prices, slowing money supply
growth, weakening consumer inflation expectations and moderating
business pricing expectations indicate that inflation risks are easing
appreciably and the ECB has increasing scope to take interest rates
lower.
"We doubt that the ECB will
be willing to cut interest rates at their June 6 policy meeting and will
prefer to wait and see what happens with the Greek elections and their
aftermath, as well as with near-term growth and inflation developments.
However, we now expect the ECB to trim interest rates in the third
quarter, with July a very real possibility."
MARTIN VAN VLIET, ING
"It was slightly lower than consensus in terms of the actual decline, probably reflecting energy and food price inflation.
"In
terms of the inflation outlook, we expect the recent falling streak to
continue, but it will be a slow process because we expect tax increases
(in some countries), which are an upward force, and a weaker euro
pushing up import prices.
"In terms
of looking beyond the next 6-12 months, we can say there is still no
clear sign of an upturn, underlying price pressures will remain muted,
so maybe there is a case for further (monetary) policy easing.
"It may take until next year before inflation falls below 2 percent."
