Eurozone inflation pulled back further in May from the European Central Bank’s target, according to data released just days before a key policy decision.

The bloc’s inflation rate dropped to 1.2 per cent in May, down from 1.7 per cent the previous month, according to a preliminary estimate from Eurostat. The figure was below the 1.3 per cent forecast by economists in a Reuters poll.

Core inflation, which strips out the more volatile energy, food, alcohol and tobacco categories, dropped to 0.8 per cent in May, down from 1.3 per cent the previous month and below consensus expectations.

Eurozone inflation has been below the ECB target of close to but under 2 per cent for most of the last six years.

“The ECB — like most other central banks — is facing particularly challenging times with an increasingly depleted tool box to fight the continued low-inflation environment” said Erik Nielsen, chief economist at UniCredit.

The central bank is due release its latest policy decision later this week.

Meanwhile, market estimates for the bloc’s inflation rate remain subdued. Expectations for the next five years in five years’ time, the so-called 5y5y inflation swap rate, dropped to 1.3 per cent, close to 1.25 per cent in mid-2016.

“In the past, the announcements of new ECB stimulus often coincided with sharp drops in market-based inflation expectations” said Carsten Brzeski, economist at ING.

The low-inflation environment, combined with higher trade uncertainties “has triggered speculation about another rate cut” said Mr Brzeski.

Separate data also released on Tuesday showed the eurozone unemployment rate dropped to 7.6 per cent in April, the lowest rate since 2009, and corresponding to an annual drop of nearly 1.2m jobseekers.

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Via Financial Times