Quantcast
Get breaking news alerts via email

Click here to manage your alerts
A man sits outside his carpet shop in the tourist district of Plaka in Athens, Friday, June 27, 2014. Tourist arrivals in Greece are expected to increase by 20 percent compared to last year. (AP Photo/Petros Karadjias)
Eurozone inflation stuck at low 0.5 percent
Economy » EU financial analysts concerned the low inflation rate is choking off growth.
First Published Jun 30 2014 09:19 am • Last Updated Jun 30 2014 09:19 am

Brussels • 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.

Join the Discussion
Post a Comment

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.

Under the program, the central bank would have to buy bonds or other financial assets on a large scale with new money.

Analyst Jennifer McKeown of Capital Economics said the latest inflation reading "will add to pressure on the ECB to provide more policy support, particularly given recent signs that the recovery may already be slowing."

The low inflation will ultimately push the ECB toward implementing such a program of large-scale bond purchases "to tackle the risk of deflation," McKeown added.

At the June meeting, the ECB decided to lower it benchmark interest rate to 0.15 percent and cut another rate into negative territory for the first time. On top of that, it promised billions in cheap loans for banks on condition they lend more to businesses.


story continues below
story continues below



Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Reader Comments Read All Comments Post a Comment
Click here to read all comments   Click here to post a comment


About Reader Comments


Reader comments on sltrib.com are the opinions of the writer, not The Salt Lake Tribune. We will delete comments containing obscenities, personal attacks and inappropriate or offensive remarks. Flagrant or repeat violators will be banned. If you see an objectionable comment, please alert us by clicking the arrow on the upper right side of the comment and selecting "Flag comment as inappropriate". If you've recently registered with Disqus or aren't seeing your comments immediately, you may need to verify your email address. To do so, visit disqus.com/account.
See more about comments here.
Staying Connected
Videos
Jobs
Contests and Promotions
  • Search Obituaries
  • Place an Obituary

  • Search Cars
  • Search Homes
  • Search Jobs
  • Search Marketplace
  • Search Legal Notices

  • Other Services
  • Advertise With Us
  • Subscribe to the Newspaper
  • Access your e-Edition
  • Frequently Asked Questions
  • Contact a newsroom staff member
  • Access the Trib Archives
  • Privacy Policy
  • Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.