Euro-area consumer prices failed to increase for a fourth consecutive month, highlighting policy makers’ struggle to stoke inflation despite multiple rounds of stimulus.
Prices fell 0.1% in May from a year earlier, the European Union’s statistics office in Luxembourg said yesterday. That’s in line with the median estimate in a Bloomberg survey of economists and follows a drop of minus 0.2% in April. The unemployment rate held at 10.2% last month, according to a separate Eurostat release.
The European Central Bank, led by Mario Draghi, has been battling for the past three years to bring inflation in line with its mandate, cutting interest rates below zero and buying a raft of securities including sovereign bonds.
Even with the economy slowly improving, consumer-price growth remains far away from the ECB’s goal of just under 2%, raising the question of whether extraordinary stimulus is losing its sway.
“I would not say the ECB’s policy is without effect,” said Ulrike Kastens, senior economist at Sal. Oppenheim Group in Cologne. Monthly fluctuations in inflation data are nothing the ECB can influence with a policy designed to ensure price stability in the medium term, she said, adding that in any case, May inflation data in line with expectations “definitely doesn’t put pressure on the ECB.”
The ECB’s next interest-rate decision will be announced tomorrow, and economists predict policy will remain unchanged after a fresh round of stimulus in March that included interest-rate cuts and a bump of €240bn ($267bn) to the bond-buying programme. Draghi will hold a press conference in Vienna, where officials gather for one of their regular out-of-Frankfurt sessions.
The Eurostat reports follow data on Monday showing that economic confidence within the 19-country bloc rose for a second month in May, with sentiment improving among consumers, as well as in retailing and in construction.
In a separate release yesterday, ECB data showed that loans to non-financial Corps rose 1.2% in April, compared with 1.1% in March. Lending to households slowed.
While most economists in Bloomberg’s monthly survey predict the central bank’s forecasts for inflation and growth will be left unchanged or increased at this week’s meeting, they also see the relief as short-lived: Two thirds predict Draghi will eventually need to announce yet more stimulus.
That view stands in contrast to vice-president Victor Constancio’s more optimistic stance. He said that he “certainly personally expects” consumer-price growth to be near the ECB’s goal of just under 2% in two years’ time.
In March, the ECB forecast euro-area growth of 1.4% this year, 1.7% in 2017 and 1.8% in 2018, with inflation of 0.1%, 1.3% and 1.6%, respectively.
“We will have several months of very low, and sometimes negative, headline inflation,” Constancio said in an interview with Bloomberg Television on May 24. “That will start to change in the last quarter of this year and I am very confident that the forecast that next year we will be above 1% will materialise, and certainly then will continue to increase for 2018.”
In May, core inflation, which strips out volatile elements such as food and energy, accelerated to 0.8% from 0.7% in April, the Eurostat data showed.
The inflation rate in Spain held steady at minus 1.1% this month, data released on Monday showed. In Germany, the region’s biggest economy, a slide in consumer prices unexpectedly halted.
“Inflation is way below the objective, so the ECB will keep the door for more easing open,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. “It will not be easy for Draghi to choose the right words, he has to keep the easing fantasy alive but he has to say that growth is OK — not in every country, but on average it’s OK.”
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