BRUSSELS/FRANKFURT (Reuters) – Euro zone inflation unexpectedly rose in June but underlying price pressures dropped again, underscoring fears that consumer price growth will remain anaemic for years as the bloc recovers from the biggest recession in living memory.
Annual inflation in the 19 countries sharing the euro accelerated to 0.3% in June from a four-year low of 0.1% in May, beating forecasts for no change and supporting the European Central Bank’s expectation that a negative reading may be avoided.
Excluding volatile food and energy prices, a key measure watched by the ECB, inflation eased to 1.1% from 1.2% while an even narrower gauge, which also excludes alcohol and tobacco, fell to 0.8% from 0.9%, data from Eurostat, the EU’s statistics agency showed on Tuesday.
The ECB targets inflation at 2% but has already missed this for seven years and expects to undershoot at least through 2022 as a coronavirus-induced recession raises unemployment, dampens consumption and depresses wage growth.
Tuesday’s figure may still offer mild comfort to the ECB that the rapid decline in inflation, also fuelled by crashing oil prices, may be over, even if any rebound in price growth is still unlikely until next year.
Policymakers had hoped massive government wage subsidies which limited income losses for households plus super easy monetary policy would limit the damage to the economy and prop up confidence enough to prevent a dangerous deflationary spiral.
But ECB projections suggest inflation could stay at or near zero for the rest of 2020 and only pick up in the second quarter of 2021.
Energy prices were down 9.4% year on year in June, following an 11.9% plunge in May, while unprocessed food prices were 5.9% higher after a 6.7% increase in May. Inflation in services dropped to 1.2% from 1.3%.
For details of Eurostat data click on:
Reporting by Philip Blenkinsop and Balazs Koranyi; Editing by Edmund Blair