Eurozone: Core inflation drops below 1% - ING

Bert Colijn, senior economist at ING, notes that the Eurozone core inflation has dropped to 0.8% and headline to 1.2% in May, putting further pressure on the ECB.

Key Quotes

“Weaker than expected, the inflation rate remains uncomfortably stuck around 1%, despite the maturing economic cycle. The weak inflation rate comes despite continuing labour market pressures. The unemployment rate dropped from 7.7 to 7.6% in April, which was the lowest rate since August 2008.”

“With global growth worries increasing and the eurozone vulnerable to the global cycle, this is becoming an increasing concern, as the downside risk is that core inflation will not move much above 1% this cycle. Market-based inflation expectations trade around all-time lows, indicating that at least some investors are taking that risk seriously.”

“This will no doubt make some ECB board members a little hot under the collar, as pressure to take action is mounting. At the April meeting, it was already mentioned that price pressures remain uncomfortably low, which has certainly not improved since then. Expect a dovish tone from the ECB on Thursday.”