EU Inflation at Lowest Levels in 2017

BRUSSELS (AP) -- Inflation across the 19-country eurozone has fallen to its lowest level this year, official figures showed Wednesday, in a development that may temper speculation that the European Central Bank will soon consider easing up on its monetary stimulus.

Eurostat, the EU's statistics agency, said that inflation fell to 1.4 percent in the year through May from 1.9 percent the month before.

The decline, which was slightly sharper than anticipated, means that inflation has fallen away from the ECB's target of just below 2 percent. The rise in inflation in April to the target had stoked talk in financial markets that the central bank would soon be in a position to at least start mulling the possibility of withdrawing some of its stimulus, possibly at next Thursday's policy meeting.

The ECB has slashed interest rates, including its main one to zero, and embarked on a big bond-buying stimulus program to keep a lid on market interest rates. Its primary aim is to get inflation back toward its target and then to start easing off the bond-buying program.

A major reason why inflation fell back sharply in May was the decline in the core rate, which strips out the volatile items of alcohol, food, tobacco and energy. That slipped back to 0.9 percent from the previous month's 1.2 percent.

Modest underlying rates of inflation point to sluggish wage demands even at a time when the eurozone economy is performing relatively strongly and unemployment has been dropping. ECB President Mario Draghi has pointed to the subdued core rate in recent months to urge caution over the bank changing tack soon.

The most important reason why headline inflation has been so volatile in recent months is connected to the price of oil, which is off the lows recorded last year but still swinging fairly widely. In the year to May, energy prices were up 4.6 percent. However, that was the lowest rate of increase this year and down sharply on April's equivalent rate of 7.6 percent.

(KA)