Wednesday 17 July 2019 1:40 pm

Tepid Eurozone inflation stays well below ECB target

Eurozone inflation rose to 1.3 per cent in the year to the end of June, official figures showed today, but was still well off the European Central Bank’s (ECB) two per cent target.

Read more: Eurozone retail sales see surprise fall in May

The weak rise in prices will bolster market expectations that the ECB will cut interest rates to boost borrowing and spending in an attempt to kickstart the area’s economy.

The Eurozone’s central bank pushed back the possibility of an interest rate rise for at least a year at its last meeting. 

Recent noises from ECB officials have suggested it is preparing to inject more stimulus. Its main refinancing rate stands at zero per cent, but could move into negative territory.

Last month’s 1.3 per cent inflation figure compares to 2.1 per cent year-on-year growth in prices seen in June 2018.

This June, rising services prices were the biggest factor in inflation, followed by higher food, alcohol and tobacco and energy costs.

In the significant economies of Italy, Spain and Portugal, annual inflation was below one per cent in June. In Germany and France it was at 1.5 per cent and 1.4 per cent respectively.

S&P Global Ratings economist Marion Amiot said weak inflation in the euro area came despite wage growth accelerating.

“The global slowdown” could “exacerbate the persistent weak inflationary pressures,” she said, “which could cause inflation expectations and the ECB’s target to diverge further”.

Growth in the Eurozone has flagged during a tough time for the global economy. A slowdown in China has hurt demand for products from Germany, the zone’s biggest economy, while trade tensions have also been damaging.

Read more: Euro falls as meeting minutes show ECB ready to ease rates

“Against this backdrop, we think the ECB has little choice but to loosen monetary policy further this year,” Amiot said.