Eurozone inflation stuck at low 0.5 percent

Published on NewsOK Modified: June 30, 2014 at 9:44 am •  Published: June 30, 2014
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BRUSSELS (AP) — The inflation rate across the 18-country eurozone languished at a low of 0.5 percent in June, official figures showed Monday, adding urgency to the European Central Bank's recently announced measures to help the economy.

Some economists warn the persistently low inflation rate can hurt growth. In a worst case, an extended drop in prices could cause a deflationary spiral, which can choke off growth and take years — if not decades — to break out of.

While the ECB doesn't expect deflation, it is worried about low inflation. That spurred it to announce at its last meeting in June a raft of aggressive measures to improve the flow of credit and money in the financial system. Despite Monday's evidence that inflation remains low, analysts don't expect the ECB to take further action at its next rate-setting meeting this week.

"The ECB is clearly going to sit tight for now at least while the interest rates and liquidity measures it announced at its June meeting increasingly kick in," said Howard Archer of IHS Global Insight.

Analysts were on average expecting inflation to edge up to 0.6 percent, according to financial data provider FactSet. A closer look at the figures released by the European Union's statistics agency shows the core inflation rate, which excludes volatile food and fuel costs, rose slightly to 0.8 percent from 0.7 percent in May.

The ECB wants the headline inflation rate to be just under 2 percent. Should it continue to undershoot expectations, some experts believe the bank will have to take the aggressive step of pumping newly created money into the economy. Such a program, called quantitative easing, has been adopted with some success by the U.S. Federal Reserve, but remains a complex issue in the eurozone as the ECB would likely face significant practical hurdles and legal challenges.